Reverse Charge Mechanism (RCM) under GST
In the normal course of business, the person supplying goods or services is required to deposit GST. But by virtue of Sec 9(3) & 9(4) of the CGST Act, 2017 and in terms of Sec 5(3) & 5(4) of the IGST Act, 2017, the liability to deposit GST has been vested on recipient of goods & services under Reverse Charge.
As per Sec 2(98) of the CGST Act, 2017
“reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act;
In exercise of the power conferred by Sec 9(3) & 9(4) of the CGST Act,2017 and Sec 5(3) & 5(4) of the 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.
Reverse charge – Tax payable by recipient of goods or services or both
GST shall be paid by the recipient of goods or services or both, on reverse charge basis, in the following cases:
1. Supply of goods or services or both, notified by the Government u/s 9(3) of CGST Act,2017 or u/s 5(3) of IGST Act, 2017 on the recommendations of the GST Council (e.g. Notification No. 04/2017 Dated 28 June 2017, Notification No. 13/2017 Dated 28th June 2017, Notification No. 33/2017 Dated 13th Oct 2017, Notification No. 36/2017 Dated 13 Oct 2017, Notification No. 43/2017 Dated 14 Nov 2017 & Notification No. 03/2018 Dated 25th Jan 2018 – Central Tax (Rate), Notification No. 11/2018- Central Tax (Rate) Dated 28 May 2018, Notification No. 10/2017- Dated 28th June 2017, Notification No. 34/2017- Dated 13th June 2017 & Notification No. 03/2018- Dated 25th Jan 2018 –Integrated Tax (Rate), Notification No 12/2018- Dated 28 May 2018 , Notification No 05/2019- Dated 29 March 2019 –Integrated Tax (Rate)
2. Supply of taxable goods or services or both by an unregistered supplier to a registered person u/s 9(4) of CGST Act, 2017 or u/s 5(4) of IGST Act, 2017
There is a lot of confusion created as to whether RCM will be applicable from 1st February 2019 or not?
The reason behind the confusion arising in minds of people is the CGST(Rate) Notification no. 01/2019 dated 29th January 2019 which talks about rescinding the section 9(4) notification (notification no. 08/2017) dated 28th June 2017 in order to bring into effect the amendments regarding RCM on supplies by unregistered persons in the GST Acts and CGST Notification no. 02/2019 dated 29th January 2019.
Notification no. 2/2019 C.T dated 29th January 2019 notifies the CGST Amendment Act 2018 w.e.f. 01st February 2019 wherein the section 9(4) of CGST Act has been amended as follows:-
In section 9 of the principal Act, for sub-section (4), the following sub-section shall be substituted, namely:––
“(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of 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 such supply of goods or services or both.”
This provision is not applicable to all registered persons, goods and services. It is applicable only to selected categories of registered persons & Goods and services which has to be notified by the Government.
Notification No. 07/2019 Central Tax ( Rate) dated 29 March 2019 has been issued to specify that the builder shall be liable to pay tax under RCM on specific services
Number of notifications had been issued for suspension of the RCM provisions under sec 9(4) (Notification No. 8/2017-Central Tax (Rate) Dated 28 June 2017 ,Notification No. 38/2017 Dated 13 October 2017 , Notification No. 10/2018 Dated 23 Mar 2018 , Notification No. 12/2018 Dated 29 June 2018, Notification No. 22/2018 Dated 06 Aug 2018 ,Central Tax (Rate) Notification No. 32/2017 Dated 13th October 2017 – Integrated Tax(Rate)).
In case of goods or services covered under RCM, all the provisions of the CGST Act shall apply to the recipient in the aforesaid cases as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.
GOODS COVERED UNDER REVERSE CHARGE
The Central Government, vide Notification No. 4/2017-Central Tax (Rate) Dated 28th June 2017 and vide Notification No.43/2017-Central Tax (Rate) Dated 14th November 2017, Notification No. 11/2018-Central Tax (Rate) Dated 28 May 2018 has specifies the supply of following goods, tax on which shall be paid on reverse charge basis by the recipient of such goods, if he is a registered person.
1) Cashew nuts, not shelled or peeled
2) Bidi Wrapper leaves (tendu)
3) Tobacco leaves
4) Silk yarn
5) Supply of Lottery
6) Raw Cotton by Agriculturist
7) Primary Sector lending certificate
SERVICES COVERED UNDER REVERSE CHARGE
The Central Government vide Notification No.13/2017-Central Tax(Rate) Dated 28-06-2017, Notification No. 22/2017- Central Tax (Rate) dated-22nd August, 2017, Notification No. 33/2017-Central Tax(Rate) Dated 13-10-2017, Notification No. 03/2018 Dated 25th Jan 2018 – Central Tax (Rate), Notification No. 11/2018 Dated 28 May 2018 ,) Notification No. 16/2018-Integrated Tax (Rate), Dated: 26th July, 2018, Notification No. 29/2018 Dated 31 Dec 2018 , Notification No. 05/2019 Dated 29 March 2019 – Central Tax (Rate) Circular No. 86/05/2019- GST Dated 01 Jan 2019 has notified following categories of services wherein whole of the tax shall be payable by the recipient on services U/s 9(3) of CGST Act,2017 on Reverse charge basis.
Sl
Category of supply of services
Supplier of Service
Recipient of service
1
Supply of services by a Goods Transport Agency (GTA) [who has not paid central tax at the rate of 6%], in respect of transportation of goods by road.
Goods Transport Agency (GTA)
(a) any factory registered under or governed by the Factories Act, 1948;
or
(b) any society registered under the Societies Registration Act 1860 or under any other law for the time being in force in any part of India;
or
(c) any co-operative society established by or under any law;
or
(d) any person registered under the CGST Act or the IGST Act or the SGST Act or the UTGST Act; or
(e) any Body Corporate established, by or under any law; or
(f) any partnership firm whether registered or not under any law including association of persons; or
(g) any casual taxable person
2
Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly
An individual Advocate including a senior advocate or firm of advocates
Any business entity located in the taxable territory.
3
Services supplied by an arbitral tribunal to a business entity.
An arbitral tribunal
Any business entity located in the taxable territory
4
Services provided by way of sponsorship to any Body corporate or partnership firm.
Any person
Any Body corporate or partnership firm
5
Services supplied by the Central Government, State, Government, Union territory or local authority to a business entity excluding, –
(1) renting of immovable property, and
(2) services specified below-
(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 authority
Any business entity located in the taxable territory
5A
Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12 of 2017)
Central Government, State Government, Union territory or local authority
Any person registered under the Central Goods and Services Tax Act, 2017
6
Services supplied by a director of a company/body corporate to the said company/body corporate.
A director of a company or a body corporate
The company or a body corporate located in the taxable territory.
7
Services supplied by an insurance agent to any person carrying on insurance business
An insurance agent
Any person carrying on insurance business, located in the taxable territory.
8
Services supplied by a recovery agent to a banking company or a financial institution or a non- banking financial company
A recovery agent
A banking company or a financial institution or a non banking financial company, located in the taxable territory.
9
Supply 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 like.
Author or music composer, photographer, artist, or the like
Publisher, music company, producer or the like, located in the taxable territory.
10
Supply of service by the members of overseeing committee to Reserve Bank of India
Members of The Overseeing Committee constituted by the Reserve Bank of India
Reserve Bank of India
11
Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs).
(Notification No. 16/2018-Integrated Tax (Rate), Dated: 26th July, 2018)
Individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm.
A banking company or a non-banking financial company, located in the taxable territory
12
Services provided by business facilitator (BF) to a banking company
(clarification vide circular No. 85/05/2019 – GST dt 01 Jan 2019)
Business facilitator (BF)
A banking company,located in the taxable territory
13
Security services (services provided by way of supply of security personnel) provided to a registered person:
Provided that nothing contained in this entry shall apply to, –
(i) (a) a Department or Establishment of the Central Govt. or State Government or Union territory; or
(b) local authority; or
(c) Governmental agencies;
which has taken registration under the Central Goods and Services Tax Act, 2017 only for the purpose of deducting tax under section 51 of the Act and not for making a taxable supply of goods or services; or
(ii) a registered person paying tax under section 10 of the said Act.
Notification No. 29/2018 – Central tax dated 31.12.2018
Any person other than a body corporate
A registered person,located in the taxable territory
In addition to above services, following two additional services has been notified by the Central Government vide Notification No.10/2017-Integrated Tax(Rate) Dated 28-06-2017 wherein whole of the tax shall be payable by the recipient on services U/s 5(3) of IGST Act,2017 on Reverse charge basis.
Sl No.
Category of supply of services
Supplier of Service
Recipient of service
01
Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.
Any person located in a non-taxable territory.
Any person located in the taxable territory other than non-taxable online recipient.
02
Services supplied by a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the Customs Station of clearance in India.
A person located in a non-taxable territory.
Importer, as defined in Sec 2(26) of the Customs Act,1962, located in the taxable territory.
The Author is a Fellow member of The Institute of Chartered Accountants of India , New Delhi & Fellow member of The Institute of Cost Accountants of India, Kolkata and can be reached at [email protected]
(Article is republished with amendments by Taxguru Team & CA Anita Bhadra)
