Applicability of RCM on inward supply from unregistered dealer effective 01.02.2019


Central Goods & Services Act, 2017(hereinafter to be referred as 'CGST Act, 2017') and Integrated Good & Services Act, 2017(hereinafter to be referred as 'IGST Act, 2017') vide Section 9(4) and Section 5(4) respectively levied GST on all supplies from unregistered dealer to registered dealer in the hand of registered dealer under reverse charge mechanism (hereinafter to be referred as 'RCM'). However, an exemption was granted by Central Government vide Notification No. 08/2017 – Central Tax (Rate) dated 28-06-2017 to those registered dealers whose aggregate value of such supplies of goods or services or both received from any or all the suppliers, who is or are not registered, not exceeding five thousand rupees in a day. No such exemption was granted under IGST act.

Central Government further vide Notification No. 38/2017 – Central Tax (Rate) extended such exemption to all the registered dealers till 31st March 2018. Similar exemption notification was also issued on the same day under IGST Act to provide exemption for inter-state supplies.

Such exemption was further extended to 30th June 2018, then 30th September 2018 and then 30th September 2019 vide various notifications issued by the Central Government on both Intra-state and Inter-state Supplies.

Now, vide Notification No. 01/2019 – Central Tax (Rate) dated 29-01-2019, Central Government rescinds principle Notification No. 08/2017 – Central Tax (Rate) dated 28-06-2017 and consequently exemption provided till 30th September 2019 stands withdrawn. Such exemption was also withdrawn on inter-state supplies in the same line vide Notification No. 01/2019 – Integrated Tax (Rate) dated 29-01-2019.

Reverse Charge Mechanism

Section 9(3) and Section 9(4) of the CGST Act 2017 deals with the applicability of RCM on recipients of intra-state supplies of goods or services or both.

Section 5(3) and Section 5(4) of the IGST Act 2017 deals with the applicability of RCM on recipients of inter-state supplies of goods and services or both.

Section 9(3) of the CGST Act, 2017 deals with the reverse charge provisions on the specified categories of goods and services or both, the tax on which shall be paid under RCM by the recipient of such goods or services or both. Similar provisions are also there in Section 5(3) of the IGST Act, 2017 in relation of inter-state supplies.

However, Section 9(4) of the CGST Act, 2017 deals with the intra-state supplies of goods or services or both by unregistered dealer to registered dealer, and the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both. Similar provisions are also there in Section 5(4) of the IGST Act, 2017 in relation to inter-state supplies.

Since, the recent notifications issued by the Central Government deals with the reverse charge mechanism on Inter-state and Intra-state supplies referred under Section 9(4) and Section 5(4) of CGST Act, 2017 and IGST Act, 2017 respectively only. Section 9(3) and Section 5(3) of the CGST Act, 2017 and IGST Act 2017 respectively are not being impacted with the recent notifications and the earlier provisions will continue to govern them. Hence, we will be discussing only Section 9(4) and Section 5(4) of the CGST Act, 2017 and IGST Act, 2017 respectively.

Section 9(4) of the CGST Act, 2017

Section 9(4) before amendment read as follows:

 “Section 9(4). The central 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.”

The above mentioned sub-section was amended through The Central Goods & Services Tax (Amendment) Act, 2018 (No 31 of 2018) which was notified in Official Gazette on 30th August 2018 but the same was not made applicable till the date of further notification to be issued by Central Government appointing the day for applicability of the said amendment Act.

Central Government vide Notification No. 02/2019 – Central Tax dated 29-01-2019 appoints the 1st day of February 2019 as the date on which the provisions of The Central Goods and Services Tax (Amendment) Act, 2018 (No 31 of 2018), except ----------------------------------------------------------------------------------------------------------------------------------, shall come into force.

Amended Section 9(4) effective from 01-02-2019 read as follows:

“Section 9(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”

Analysis before amendment:

Every registered dealer was liable to pay GST on all inter-state or intra-state supplies of goods and services or both received from unregistered dealer under reverse charge mechanism.

Analysis after amendment:

A class of registered person shall pay GST on all inter-state or intra-state supplies of specified categories of goods or services or both received from unregistered dealer under reverse charge mechanism.

In the light of above amended provisions, on the recommendation of the GST council, a separate notification shall also be required to be issued by the Central Government for notifying class of registered person as well as specified categories of goods and services or both.

As discussed above, exemption granted earlier vide various notification on applicability of Section 9(4) and Section 5(4) of CGST Act and IGST Act, 2017 to all registered dealers has also been withdrawn vide notifications issued on 29-01-2019 effective from 01st day of February 2019.

Conclusion

Hence, amended Section 9(4) and withdrawl of exemption provided for applicability of said section are effective from 01-02-2019, the provisions of RCM on inter-state and intra-state supplies of specified categories goods or services or both received from unregistered dealer by a class of registered dealer shall be applicable.

However, Central Government is yet to notify class of registered person and specified categories of goods or services or both which will be notified on the recommendation of the GST council. Since, such dealer(s) and goods or services or both are not notified yet, the applicability of provisions of Section 9(4) and Section 5(4) of CGST and IGST Act, 2017 cannot be ascertained as on date.

Such list of class of registered dealer(s) and specified categories of goods or services or both are expected to be finalised in the upcoming GST Council meeting, since then, practically no registered dealer is required to pay GST under reverse charge mechanism on inter-state or intra-state supplies received from unregistered dealer.

The author is in Practice from Delhi and can also be reached at akshey@dcmassociates.in

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CA Akshey Kumar 
on 06 February 2019
Published in GST
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