Reverse Charge Mechanismin GST

Generally, the supplier of goods or services is liable to pay GST. However,
in specified cases like imports and other notified supplies, the liability
may be cast on the recipient under the reverse charge mechanism. Reverse
Charge means the liability to pay tax is on the recipient of supply of
goods or services instead of the supplier of such goods or services in
respect of notified categories of supply.

There are two type of reverse charge scenarios provided in law. 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) ofthe IGST Act. 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 un registered person to a registered person is covered.

As per the provisions of section 9(3) of CGST / SGST (UTGST) Act,
2017 / section 5(3) of IGST Act,
2017, 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.

Similarly, 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,
wherever a registered person procures supplies from an unregistered
supplier, he need to pay GST on reverse charge basis. However, supplies
where the aggregate value of such supplies of goods or service 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. Notification
8/2017-Central Tax (Rate) dated 28.06.2017. How ever, vide notification
no.38/2017-Central Tax (Rate)dated 13.10.2017, (corresponding IGST
notification no.32/2017-Integrated Tax (Rate) dated 13.10.2017) all
categories of registered persons are exempted from the provisions of
reverse charge under 9(4) of CGST / SGST(UTGST) Act,
2017 / section 5(4) of IGST Act,
2017, till31.03.2018. This exemption is
available only till 31.03.2018.

The provisions of section 9(4) of the CGST Act,
2017, will not be applicable to supplies made
to a TDS deductor in terms of notification no.9/2017-Central Tax(Rate) dated
28.06.2017. Thus, Government entities who are TDS Deductors under Section
51 of CGST Act,2015, need not pay GST under
reverse charge in case ofprocurements from unregistered suppliers.

Registration

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

ITC

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

Time of Supply

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, 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.

In 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 deb-
it 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.

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

a) date of payment as per books of account or date of deb-
it 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, time of supply would be date of entry in the
books of account of the recipient.

Compliances in respect of supplies under reversecharge mechanism:

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 reverse charge mechanism

Supplies of services under reverse charge mechanism