GST Reverse Charge- Registration, ITC, Time of Supply, Compliance: CBEC’s Overview

Reverse Charge Mechanism (RCM) under GST: An Overview by CBEC (All about the Applicable Provisions relating to Registration, ITC, Time of Supply, Compliance, etc. in respect of Supply of Goods and Services)

Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability is cast on the recipient under the GST reverse charge mechanism, i.e. the liability to pay tax is on the recipient instead of the supplier of such goods or services in respect of notified imports/ supplies. There are two type of reverse charge scenarios provided in the GST law, as under:

i) First is dependent on the nature of supply and/ or nature of supplier. This scenario is covered by section 9(3) of the CGST/ SGST (UTGST) Act and section 5(3) of the IGST Act.

Section 9(3) of CGST/ SGST (UTGST) Act, 2017/ section 5(3) of IGST Act, 2017 provides that the Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

ii) Second scenario is covered by section 9(4) of the CGST/SGST (UTGST) Act and section 5(4) of the IGST Act where taxable supplies by any unregistered person to a registered person is covered. 

Section 9(4) of CGST/SGST (UTGST) Act, 2017/section 5(4) of IGST Act, 2017 provides that the tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

Accordingly, whenever a registered person procures supplies from an unregistered supplier, he needs to pay GST on reverse charge basis. However, supplies where the aggregate value of such supplies of goods or services or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted.

Mandatory Registration for GST Reverse Charge (RCM)?

A person who is required to pay tax under GST reverse charge has to compulsorily get registration and the threshold limit of Rs. 20 lakhs (or Rs. 10 lakhs for special category states except J & K) is not applicable to him.

Input Tax Credit (ITC) for Tax paid under GST Reverse Charge?

A supplier cannot take ITC of GST paid on goods or services used to make supplies on which the recipient is liable to pay tax.

Time of Supply under GST Reverse Charge/ Forward Charge?

The time of supply is the point when the supply is liable to GST. One of the factor relevant for determining time of supply is the person who is liable to pay tax. In reverse charge, the recipient is liable to pay GST. Thus, time of supply for supplies under reverse charge is different from the supplies which are under forward charge.

Time of Supply of Goods

In the case of supply of goods, time of supply is earliest of: –

(a) date of receipt of goods; or

(b) date of payment as per books of account or date of debit in bank account, whichever is earlier; or

(c) the date immediately following thirty days from the date of issue of invoice or similar other document.

Time of Supply of Service

In the case of supply of services, time of supply is earliest of: –

(a) date of payment as per books of account or date of debit in bank account, whichever is earlier; or

(b) the date immediately following sixty days from the date of issue of invoice or similar other document.

Where it is not possible to determine time of supply using above methods, the time of supply would be the date of entry in the books of account of the recipient.

Compliance Requirements under GST Reverse Charge?

1. As per section 31 of the CGST Act, 2017 read with Rule 46 of the CGST Rules, 2017, every tax invoice has to mention whether the tax in respect of supply in the invoice is payable on reverse charge. Similarly, this also needs to be mentioned in receipt voucher as well as refund voucher, if tax is payable on reverse charge.

2. Maintenance of accounts by registered persons: Every registered person is required to keep and maintain records of all supplies attracting payment of tax on reverse charge

3. Any amount payable under reverse charge shall be paid by debiting the electronic cash ledger. In other words, reverse charge liability cannot be discharged by using input tax credit. However, after discharging reverse charge liability, credit of the same can be taken by the recipient, if he is otherwise eligible.

4. Invoice level information in respect of all supplies attracting reverse charge, rate wise, are to be furnished separately in the table 4B of GSTR-1.

5. Advance paid for reverse charge supplies is also leviable to GST. The person making advance payment has to pay tax on reverse charge basis.

Supplies of Goods under GST Reverse Charge Mechanism?

Sl. No.Description of Supply of GoodsSupplier of GoodsRecipient of Goods
1Tobacco leavesAgriculturistAny registered person
2Bidi wrapper leaves (tendu)AgriculturistAny registered person
3Cashew nuts, not shelled or peeledAgriculturistAny registered person
4Supply of lotteryState Government, Union Territory or any local authorityLottery distributor or selling agent
5Silk yarnAny person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarnAny registered person

Supplies of Service under GST Reverse Charge Mechanism?

Sl. No.Description of Supply of ServiceSupplier of ServiceRecipient of Service
1GTA ServicesGoods Transport Agency (GTA)Any factory, society, co-operative society, registered person, body corporate, partnership firm, casual taxable person; located in the taxable territory.
2Legal Services by AdvocateAn individual advocate, including a senior advocate or a firm of advocatesAny business entity located in the taxable territory
3Services supplied by an arbitral tribunal to a business entityAn arbitral tribunalAny business entity located in the taxable territory
4Services provided by way of sponsorship to any body corporate or partnership firmAny personAny body corporate or partnership firm located in the taxable territory
5Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding: – (1) renting of immovable property, and (2) specified services, e.g. (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers.Central Government, State Government, Union territory or local authorityAny business entity located in the taxable territory
6Services supplied by a director of a company or a body corporate to the said company or the body corporateA director of a company or a body corporateThe company or a body corporate located in the taxable territory
7Services supplied by an insurance agent to any person carrying on insurance businessAn insurance agentAny person carrying on insurance business, located in the taxable territory
8Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial companyA recovery agentA banking company or a financial institution or a non-banking financial company, located in the taxable territory
9Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under section 13(1)(a) of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the likeAuthor or music composer, photograph her, artist, or the likePublisher, music company, producer or the like, located in the taxable territory

CBEC’s Overview on Compliance under Reverse Charge Mechanism (RCM) of GST

One Response

  1. N. Krishnaswamy Aug 28, 2017

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