Introduction: With the introduction of GST, a new provision is introduced which is not there is any of the earlier tax laws. As per the new law, in case one registered person receive any goods or services or both, which is taxable, from the unregistered person, registered person shall be required to pay tax and all the other liabilities like issue of invoice, filing return, assessment of the same shall be the responsibility of the recipient/registered person.
As per section 9(4) of the CGST Act, 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.
There are following elements which need to be present to trigger this section:
- There should be supply.
- Supply should be in respect of taxable goods or services or both.
- Supply must be by unregistered person.
- Supply must be to registered person.
Analysis: If the transaction is not covered under the definition of supply, this section won't be applicable.
1. Sale of Land from unregistered person or agriculturist to ABC Ltd. who is registered in GST: Sale of Land is not considered as supply so the provision of 9(4) is not applicable.
2. Sale of Alcohol from unregistered person to registered to registered person: Not supply since the alcohol is kept out of the preview of GST so the provision of 9(4) is not applicable.
3. If the supply involved exempt goods or services or both this section won't be applicable.
1. A registered person hire auto rickshaw for commuting from one place to another: Section 9(4) won't be applicable since transportation of passenger by auto rickshaw is exempted services.
2. A registered person stay in a hotel whose room tariff is less than Rs. 1,000/: Section 9(4) won't be applicable since services by a hotel having declared tariff less than Rs. 1,000/- per day is an exempt service.
3. The Section is applicable to intra state taxable supplies only. As per section 24, in case of inter-state taxable supply, registration is mandatory without any turnover limit. So there could not be any taxable supply between the two states.
4. Supplier should be unregistered whether he is liable to registered or not.
5. Recipient should be registered.
Exemption to section 9(4) of CGST: As per section 11(1) of the CGST Act, if the Government is satisfied that it is in interest of the public to exempt some goods or services or both, either fully or partly of the tax leviable thereon.
On using this power, Government has issued notification No. 8/2017- Central Tax (Rate) which shall be in force from July 1, 2017.
As per the notification, exemption shall be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, is upto five thousand rupees in a day.
1. Exemption is on intra state taxable supply.
2. There is a limit of transaction value of Rs. 5,000/- per day: Means in case of supply more than Rs. 5,000/- per day, whole of such supply shall be taxable under reverse charge 9(4).
3. Limit is in respect of all suppliers: This should be noted that the limit is not respected to one supplier.
The author can also be reached at firstname.lastname@example.org