19/06/2017
About Reverse Charge: The reverse charge has been defined under Section 2 (98) of the CGST Act, 2017. For the common understanding, reverse charge means the liability to pay tax is on the receiver of the supply of goods or services in place of the supplier of such goods or services.
Power to Levy and Collect tax under reverse charge: Section 9(3) of the CGST Act, 2017, read with section 5(3) of the IGST Act, 2017 provides the power to levy tax on receiver of the supply of goods and services. As per this section, the Government may notify certain goods and services where the liability to pay GST will be on service receiver under reverse charge mechanism as person liable to pay service tax.
Further as per Section 9(4) of the CGST Act, 2017 read with section 5(3) of the IGST Act, 2017, the supplies of taxable goods or services by the unregistered supplier to a registered person has also been covered under the reverse charge mechanism. In case of receipt of goods or services from the unregistered supplier to the registered person the applicable GST shall be discharged by the registered recipient person.
Type of supplies which will attract RCM: From the above it may be gathered that two kinds of supplies have been covered under reverse charge mechanism which are as under:
A. Supply of notified/specified goods and services under reverse charge mechanism on the recommendation of the GST Council.
B. Supply of any taxable goods or services by the unregistered person to the registered person under this act.
For the purpose of discharging GST as service recipient, the person receiving the goods or services will be treated as person liable to pay GST and all the provisions of this act which are applicable to taxable goods of service supplier shall be applicable to the service receiver for the purpose of discharging the GST as service recipient under reverse charge mechanism.
Services recommended by the GST Council to be under Reverse Charge Mechanism: There is no partial reverse charge mechanism under GST unlike Service Tax. The Council in its 14th meeting held on 19.05.2017 has broadly approved the list of services being covered under reverse charge mechanism which will be given effect through the notification subsequently. Though, the list of services covered under reverse charge mechanism as approved by the GST council shows serial of services upto 18 due to numbering error but in fact there are only 12 kinds of services which are coming under reverse charge mechanism.
For the sake of ready reference, the said list along-with applicable rate of GST as per service tax rate schedule is being reproduced below. The service receiver mentioned in column 4 shall be liable to pay the 100% GST on these services under reverse charge mechanism:
| Sl. No. | Name of Service | Provider of Service | Recipient of Service | Rate of GST applicable |
| 1 | 2 | 3 | 4 | 5 |
| 1 | Taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory other than non-assessee online recipient (OIDAR) | Any person who is located in a non-taxable territory | Any person located in the taxable territory other than non-assessee online recipient (Business Recipient | GST rate will be applicable as per category of service received from outside Taxable Territory. Full rate of GST is @ 18%. |
| 2 | Services provided or agreed to be provided by a goods transport agency (GTA) in respect of transportation of goods by road | Goods Transport Agency (GTA) | (a) any factory registered under or governed by the Factories Act, 1948; (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; (c) any co-operative society established by or under any law; (d) any person registered under CGST/SGST/UTGST Act; (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. (g) Casual taxable person | 5% No ITC (Here “No ITC” denotes for service provider not for recipient, hence the recipient may be obligated to obtain declaration while notifying the services under RCM) |
| 3 | Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly | An individual advocate or firm of advocates | Any business entity. | Full Rate @ 18% |
| 4 | Services provided or agreed to be provided by an arbitral tribunal | An arbitral tribunal | Any business entity. | Full Rate @ 18% |
| 5 | Sponsorship services | Any person | Anybody corporate or partnership firm. | Full Rate @ 18% |
| 6 | Services provided or agreed to be provided by Government or local authority 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 Government; (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. | Government or local authority | Any business entity. | GST rate will be applicable as per category of service received from the Government. Full rate of GST is @ 18%. |
| 7 | Services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate; | A director of a company or a body corporate | A company or a body corporate | Full rate of GST@ 18%. |
| 8 | Services provided or agreed to be provided by an insurance agent to any person carrying on insurance business | An insurance agent | Any person carrying on insurance business | Full rate of GST@ 18%. |
| 9 | Services provided or agreed to be provided 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. | Full rate of GST@ 18%. |
| 10 | Services 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 non-taxable territory to a person located in non-taxable territory | Importer as defined under clause (26) of section 2 of the Customs Act, 1962. | 5% with ITC of input services |
| 11 | Transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works | Author or music composer, photographer, artist, etc | Publisher, Music company, Producer | Full rate of GST@ 18%. |
| 12 | Radio taxi or Passenger Transport Services provided through electronic commerce operator | Taxi driver or Rent a cab operator | Any person (GST to be discharged by Electronic Commerce Operator only) | 5% No ITC ( to be discharged by Electronic Commerce Operator only |
Point of supply under Reverse Charge Mechanism (RCM): Where the GST is being paid under reverse charge mechanism, the tax will be payable on following point of time:
As per Section 12(3) of CGST Act, 2017 the Point of Supply for Goods shall be earliest of the following dates:
- The date of receipt of goods; or
- The date of Payment entered in books of recipient or debited from bank account of the recipient, whichever is earlier; or
- The date immediately after 30 days from the date of invoice or any other document issued by the supplier:
In case it is not possible to ascertain the point of supply as per above the time of supply shall be the date on which goods entered in the books of accounts of the recipient.
As per Section 13(3) of CGST Act, 2017 the Point of Supply for Services shall be earliest of the following dates:
- The date of payment as entered in the books of account of the recipient or the date on which payment is debited from the bank account of the recipient whichever is earlier; or
- The date immediately after 60 days from the date of invoice or any other document issued by the supplier:
In case it is not possible to ascertain the point of supply as per above the time of supply shall be the date on which service entered in the books of accounts of the recipient.
Further, in case of associate enterprises providing service from outside India, the point of supply shall be the dated of entry in books of account of the recipient or payment whichever is earlier.
To conclude, the point when a recipient is liable to pay tax under reverse charge towards goods and services, we may note the following bullet points:
- Every advance payment to the supplier of goods or services covered under reverse charge is liable to GST at the time of its payment from bank or cash or entry in the books of account of recipient whichever is earlier;
- At the time or receipt of goods.
- In case of goods, the date after 30 days from the date of issue of supply invoice/any other supply document.
- In case of services, the date after 60 days from the date of service supply invoice/other supply document.
- The date of payment of service invoice in case it is paid within 60 days.
Liability to issue Invoice/Payment Voucher by service recipient against the supplies received and payment made to supplier under reverse charge mechanism: Section 31(3)(f) provides to issue INVOICE in respect of goods or services received under reverse charge mechanism at the time of its receipt and Section 31(3)(g) prescribes to issue PAYMENT VOUCHER at the time of payment to the supplier of goods and services covered under reverse charge mechanism.
- As per aforesaid provision the recipient of service shall issue a tax invoice in its own name at the time receipt of goods or services covered under reverse charge.
- The same will be reported in the GSTR-1 outward supplies return as outward supply and also in the GSTR-2 inward supplies return as a document for availing CENVAT Credit.
- The recipient of service will also issue a payment voucher giving the details/particulars as prescribed under Rule 7 of the invoicing Rules.
- The Payment vouchers which have not been adjusted during the month shall be reported in the GSTR-1 (outward supply return) for adjusting the same against future supplies.
INPUT TAX CREDIT OF GST PAID UNDER REVERSE CHARGE:
Input tax credit of the GST paid on the goods and services under reverse charge mechanism shall be available subject to their use in the furtherance of business and if it is not covered under restricted goods and services as defined under Section 17 (5) of the CGST Act, 2017 and ITC Rules made thereunder.
Second proviso to sub section (2) of Section 16 provides to reverse the credit if value of supply of goods and services along-with tax payable thereon is not paid within 180 days from the date of issue of invoice by the supplier. However, this condition for reversal of credit will not be applicable on the cases of reverse charge supply. The credit would be available without condition of payment to supplier as long the GST payable under reverse charge mechanism is discharged by the recipient of service.
(Author is Manager-Indirect Taxation At Bajaj Hindusthan Sugar Ltd.)
(The views expressed above are the personal views of author based on own legal understanding of RCM provisions of GST. The views expressed above are for general information and not to be used as legal opinion. The readers are requested to act only after ensuring the legal backing of each point elaborated above from concerned GST Act and Rules. The author disclaims all the liabilities arising upon action taken if any based on the above information)
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About the author
HIMANSHU TIWARI
CHARTERED ACCOUNTANT
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