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REVERSE CHARGE BASIS

Persons liable to pay service tax

Generally service supplier is responsible to pay service tax to the Government. But in some cases, Person other than supplier of service is liable to pay service tax and those cases are covered under Reverse charge mechanism.

List of Taxable services under Reverse Charge Mechanism:

CGST 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 on the recommendations of the GST Council.
  2. Supply of taxable goods or services or both by an unregistered supplier to a registered person

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.

Supply of Goods or/and services by Unregistered dealer to registered dealer:

Supply of Taxable goods or/and services by an unregistered dealer to a registered dealer is covered under Reverse charge mechanism.

Main features of this provision:

  • Recipient of the goods or services is registered person.
  • Supplier of the goods or services is un-registered person.
  • Supply of taxable goods or services.

The following table explains the provision.


Recipient

Supplier

Nature of supply

Applicability of RCM

RD

RD

Taxable supply

Not applicable

RD

RD

Non Taxable supply

Not applicable

RD

URD

Non Taxable supply

Not applicable

URD

URD

Taxable supply

Not applicable

URD

RD

Taxable supply

Not applicable

URD

URD

Non taxable supply

Not applicable

URD

RD

Non taxable supply

Not applicable

RD

URD

Taxable supply

Applicable


Note: Intra-State supply of taxable goods or services or both by an unregistered supplier to a registered person are exempt from CGST provided the aggregate value of such supplies of goods and/or services received by a registered person from any or all the unregistered suppliers does not exceed Rs. 5,000 in a day.

Example:

  1. Mr A, a registered supplier, engaged in the profession of architect, buys stationery worth Rs 100 for his office from a nearby shop which is not registered under GST. In such case, Mr. A would not be required to pay GST on such purchase of stationery provided his total supplies received from all unregistered persons do not exceed Rs.5,000 on that day.
  2. Rajat a business from Delhi supplies his services to the Karan a Delhi based registered dealer with services amounting to INR 7000. But Rajat is not registered under GST. What will be scenario of supply of services and reverse charge mechanism?

In this case, the reverse charge mechanism will be applicable as the services are above INR 5000 a day, and the applicable taxes will be paid by the Karan even of he draws services from unregistered dealers.

Note:

  1. An unregistered dealer cannot make interstate supplies. This means that Reverse Charge in this case will apply only in case of intra-state supply by an unregistered dealer.
  2. Only if the total supply from unregistered person exceeds Rs 5,000 in a day, then reverse charge will be applicable

Description of service

Liability of payment by

Nature of person

Service provider

Person other than service provider

Service Provider

Person other than service provider

Insurance Auxiliary Service

0%

100%

Insurance agent

Person doing insurance business located in Taxable territory

Services provided by recovery agents

0%

100%

Recovery agents

Banking company/ Financial Institution/ NBFC located in Taxable territory

Transportation of goods by road (Person liable to pay freight charge is liable to pay service tax, if he is located in taxable territory)

0%

100%

GTA

Society, Factory, Persons registered under CGST/ SGST/ IGST Acts, Firm, Body Corporate located in Taxable territory

Sponsorship services

0%

100%

Any Person

Body Corporate/ Partnership firm located in Taxable territory

Services supplied by a firm of Advocates or individual advocates including senior advocates by way of representational services before any court or tribunal either directly or indirectly

0%

100%

Individual advocate/ firm including Senior advocate

Any Business entity located in taxable territory

Services supplied by arbitral tribunal

0%

100%

Arbitral Tribunal

Any business Entity located in taxable territory

Services provided by Director to company or Body corporate

0%

100%

Director of company/ Body corporate

Company/ Body corporate

Services provided by government or local authority (other than renting of immovable property and those which are mentioned in Exemptions)

0%

100%

Any Government or local authority

Any business Entity located in taxable territory

Any service (Import of service)

0%

100%

Located in non taxable territory

Located in taxable territory

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

0%

100%

Author or music composer, photographer, artist, or the like

Publisher, music company, producer or the like, located in the taxable territory.

Services Electronic commerce operator (ECO) in any manner

0%

100%

ECO (or) his agent (or) representative


Note: Taxable supply of goods/ services by unregistered supplier to registered supplier to be taxed on reverse charge basis.

Electronic commerce operator (ECO):

'Electronic commerce operator' means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce.

Working process of ECO:

  • ECO display products as well as services which are actually supplied by some other person to the consumer, on their electronic portal.
  • The consumers buy such goods/ services through these portals.
  • On placing the order for a particular product/ service, the actual supplier supplies the selected product/ service to the consumer.
  • The price/ consideration for the product/ service is collected by the ECO from the consumer and passed on to the actual supplier after the deduction of commission by the ECO.

Notification No. 17/2017:

  • The Government may notify specific categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator (ECO) if such services are supplied through it.
  • Government notify the following services supplied through the ECO under this provision

Services by way of transportation of passengers by a radio-taxi, motorcab, maxicab and motor cycle

OLA Cabs

Services by way of providing accommodation in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, except where the person supplying such service through electronic commerce operator is liable for registration under section 22(1) of the CGST Act.

OYO ROOMS
Yatra .com

Taxability:


S.No

Situation

Taxable person

1

ECO is available in India

Eco is liable for payment of GST

2

ECO is not available physically in India

Person representing ECO is liable for payment of GST (Agent, Franchisee etc)

3

ECO has neither physical existence nor any representative in India

Person liable to pay GST  is the person appointed by ECO for the purpose of paying Tax


Goods Liable to be taxed under Reverse charge Mechanism:


S.No

Description of supply of Goods

Supplier of goods

Recipient of supply

1

Cashew nuts, not shelled or peeled

Agriculturist

Any Registered person

2

Bidi wrapper leaves

Agriculturist

Any Registered person

3

Tobacco leaves

Agriculturist

Any Registered person

4

Silk Yarn

Any person who manufactures silk yarn from raw silk warm cocoons for supply of silk yarn

Any Registered person

5

Supply of lottery

SG, UT or local authority

Lottery Distributor or selling agent


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Category GST, Other Articles by - sravan 



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