Mr. A: Good Day Sir, how are you?
CA: Hi Mr. A, I am doing fine, how about you?
Mr. A: Doing good, Sir I have heard that in GST if we deal with unregistered dealer then we have to pay tax on behalf of them?
CA: Hi Mr. A, Be Calm. Yes, what you are saying is true. This concept is called 'Reverse Charge'. Previously it had a very little scope in Service Tax but in GST it has very wider scope and if a registered person deals with unregistered supplier then the registered person has to raise the invoice and pay the tax on it. I understand this is huge compliance burden but this is what the current design in GST.
For example, If a registered purchases stationery from an unregistered person, then such registered person has to pay tax on such transaction under reverse charge mechanism.
Mr. A: Oh, so that tax is an additional burden on the registered person?
CA: From the compliance point of view it is really an additional task but the registered person can claim the tax paid as input tax credit in the subsequent month. So from cost point of view, registered person will not be affected.
Mr A: Ok, so what will be the time of supply considered under reverse charge transactions?
CA: Good Question. The time of supply of goods under reverse charge will be earlier of the following:
i) Date of receipt of goods or
ii) Date on which payment is made
iii) Date after 30 days from the date of issue of invoice or document by the supplier
For example, If a registered person is purchasing stationery from an unregistered person on 2nd October and the supplier is providing bill on 10th October and the amount was paid to supplier on 25th October. Then, in this case, the time of supply will be considered is on 2nd October being date of receipt of goods.
And time of supply in case of services under reverse charge will be earlier of the below:
i) The date on which payment is made
ii) Date after 60 days from the date of issue of invoice or document by the supplier
Mr A: Ok, so seriously these provisions are going to make transactions with unregistered persons a thing of past?
CA: Yes Mr A. Purchase from the unregistered person can prove costly and will also increase compliance burden as every time registered person has to take care of such transaction. Definitely, people will deal more with registered players in GST regime and hence the number of registered persons will increase under GST. But this will really affect drastically a large number of small traders or service providers.