Reverse Charge Mechanism - GST

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.

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

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

Taxability:

Goods Liable to be taxed under Reverse charge Mechanism: