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Reverse charge query

Alpesh Agrawal (article assistant) (66 Points)

22 June 2017

is there all txn liable for reverse charge in case of unregistered dealer???
plz clear this asap

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15 Replies

Shameem (Job) (242 Points)
Replied 22 June 2017

Now every purchase you make will be liable to tax if you are registered.

VIKAS SAINI (1157 Points)
Replied 22 June 2017

suppose that if we are manufacturer unit in excise and sales tax then we purchase some fruits for pooja purpose rs. 200 then rcm applicable or not .same case if we purchase tea for office and guest then RCM applicable pls clear

Shameem (Job) (242 Points)
Replied 22 June 2017

If a registered person purchases Tea from an unregistered person and if such expenses are accounted in the books of account then the registered person has to pay tax on such payment.

Shameem (Job) (242 Points)
Replied 22 June 2017

Every person has to look at his expense side of profit and loss account every month and has check if there are purchases from any unregistered person because that will attract reverse charge. Hence business has to be done very carefully, in case of any mistake interest and penalty will have to be paid on such purchase.

deep1976 (propreitor) (266 Points)
Replied 22 June 2017

suppose i own a shop on rent and i am in composition scheme

who has to collect tax and to do that account

pls explain

CA Jubair J Jeri (Practicing Chartered Accountant) (147 Points)
Replied 22 June 2017

ntroduction

Checking tax leakage has always been a crucial task for any tax enforcement authority. Goods and Service Tax ('GST')law has been structured not only to bring a new Indirect Tax code in the country, but to also embolden the revenue authorities in their war against tax evasion. One such provision is section 9(4) of the Central Goods And Services Tax Act, 2017 ('Act'). [The said section is similar to section 9(4) of corresponding State GST and section 5(4) of Integrated Goods And Services Tax Act, 2017]

Section 9(4) of the Act imposes liability on a registered person to pay tax on reverse charge basis where he takes any taxable supply of goods and services from an unregistered person.

The said provision has been widely misinterpreted by the industry to mean that tax on reverse charge basis shall be payable in all transactions between a registered and unregistered person. In this article, an attempt has been to bust certain myths surrounding this provision.

Analysis of the provision

Section 9(4) of the Act provides that:-

"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."

On bare perusal of the aforementioned provision, one can infer that tax on reverse charge basis shall be payable only when all the following conditions are satisfied simultaneously:

There must be some supply of goods or services

Supply must be of taxable goods or services

The supplier of goods or services is an unregistered person

The recipient of goods or services must be a registered person

Thus, to trigger the liability of recipient of goods or service to pay tax on reverse charge basis, all the four conditions specified above must be satisfied cumulatively.

Condition 1: There must be 'supply' of goods or service

Scope of 'Supply' under the Act is provided under section 7 which, inter alia, provides that the expression ''supply'' includes :-

"all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;"

On bare perusal of section 7 of the Act, it can be concluded that to constitute supply of goods or service, it must be made by a person in the course or furtherance of his business.

Thus, to fall within the scope of supply provided under section 7 of the Act, fulfilment of following conditions shall be essential:-

Supplier should be engaged in a 'business'

Existence of 'business' is sine qua non to constitute to constitute a valid 'supply'. It is essential that the supplies should be made by a supplier who is engaged in a 'business'. ('Business' as defined in section 2(17) of the Act)

Supply should be 'in course or furtherance of business'

This implies to constitute a valid 'supply' of goods or services, it must be 'in the course or furtherance of his business'. Thus supplies which are not 'in course or furtherance of business' would not qualify as 'supply' for levy of tax.

Example: When Ms. X, a salaried individual not registered under GST, sells her jewellery to a Jeweller registered under GST, the jeweller will not be under obligation to pay tax on Reverse Charge Basis on the jewellery purchased from Ms. X. This is because the transaction of sale of jewellery by Ms. X has not been made in the course or furtherance of business.

Under such cases, it will be important for the Registered Person to maintain appropriate documentation including declaration from supplier of goods or services to substantiate his claim that there was no obligation to pay tax on reverse charge basis on ground that the supplier was not acting in the course or furtherance of business.

Condition 2 : Supply must be of 'taxable' goods or services

Supply must be of some taxable goods or services to trigger the obligation to pay tax on reverse charge basis under section 9(4) of the Act. Thus, when a good or service on which tax is not levied or is levied at NIL rate, the provisions contained in section 9(4) of the Act shall remain dormant.

This is a logical condition as tax on reverse charge is to be paid at rates applicable on the goods or service being supplied by the unregistered person to the registered person. And when the good or service being supplied is not taxable, there would be no obligation to pay any tax thereon.

Condition 3 and 4 : Supply of goods or services by an unregistered person to a registered person

'Registered person' as defined in section 2(94) of the Act means a person who is registered under section 25.

Section 25 of the Act deals with the procedure for registration and inter alia, provides that every person liable to registration under section 22 or 24 must apply for registration within specified time and in prescribed manner. Section 22 of the Act deals with person liable for registration and section 24 deals with the cases where registration shall be compulsorily required.

Conclusion

Section 9(4) of the Act is not self-triggering on all or any transaction between a registered and unregistered person. Satisfaction of all the aforementioned conditions shall be essential to obligate a registered person to pay tax on reverse charge basis under section 9(4) of CGST Act

Alpesh Agrawal (article assistant) (66 Points)
Replied 22 June 2017

so wht about limit of 20 lakh....what is the benifit remain for 20 lakh if there are such reverse charge provision ??? plz clear this point

CA Ashok Jain (CA Practice ) (24 Points)
Replied 22 June 2017

See this Notification

https://www.cbec.gov.in/resources//htdocs-cbec/gst/notfctn-5-central-tax-english.pdf

Alpesh Agrawal (article assistant) (66 Points)
Replied 22 June 2017

plz clearfy this notification

Alpesh Agrawal (article assistant) (66 Points)
Replied 22 June 2017

My doubt is :-
suppose my turnover under 20 lakh and i won't get gst reg....so in future why any registered dealer is prefer for dealing with me as he have to pay gst as reverse charge machanism....it will increase his compliance...so why he love to dealing with unregistered dealer????

Shameem (Job) (242 Points)
Replied 22 June 2017

because there will be no doubt of input credit if he purchases from unregistered. If he purchases from registered then he can not take credit until seller pay the gst to govt.

Jothi (Elastomeric Engineers-Admin Manager) (108 Points)
Replied 22 June 2017

Please explaing about ITC against reverse charge and negative list details for which input is not eligible in reverse charge. Because in one seminar i attended, auditor says that for food and beverages input is not eligible. Please give clarity

Alpesh Agrawal (article assistant) (66 Points)
Replied 22 June 2017

thanks shameem
bt its increase additional legal compliances like return , monthly payments liability..so what is ur opinion on this???

Shameem (Job) (242 Points)
Replied 22 June 2017

As per the provisions of GST credit cannot be availed on food and beverages, building, passenger vehicle even if tax is paid on R.C.M basis that means the burden of such tax shall be borne by the taxpayer. For Ex- If a businessman has purchased food beverages of Rs. 20,000/- from unregistered person and paid GST in RCM of Rs. 2,400 then credit shall not be available on such goods and Rs. 2400/- will be added to the cost of the businessman.