Indirect Taxes

REVERSE CHARGE MECHANISM UNDER GOODS AND SERVICES TAX (GST)

Preamble

Usually a supplier of goods or service is a taxable person liable to discharge tax liability under Goods and Services Tax Act (‘GST Act’). However, in exceptional cases, GST legislation stipulates that the liability under the GST Act shall be discharged by recipient instead of supplier of goods or services. This is popularly known as Reverse Charge Mechanism (‘RCM’).

Basics of RCM

Reverse charge applies only when there is a charge on supply. If supply is exempted, nil rated or non-taxable, RCM does not apply in such a case.

Recipient of goods or services discharges GST under RCM as if he is the person liable for paying the tax on supply procured by him. All provisions of the Act including the collection, recoveries and penal provisions apply to the recipient and he is required to pay applicable tax i.e., CGST and SGST/ UTGST, or IGST depending on location of supplier and place of supply. The tax liability needs to be discharged under RCM at applicable rate of tax.

Recipient makes payment on his own account under the recipient’s GSTIN number and is declared in his GST Returns as taxable supplies on which tax liability is discharged.

Once the tax is paid under RCM by the recipient, it becomes an input tax and the recipient (payer of tax under RCM) is entitled to avail Input Tax Credit (‘ITC’) thereof, subject to other provisions contained in Chapter V of CGST Act and Input Tax Credit Rules.

RCM on notified goods or services

Recipient of notified goods or services or both is liable to pay CGST under RCM on supply of notified goods or services u/s. 9(3) of CGST Act.

Recipient is liable to discharge GST liability under RCM irrespective of:

Recipient being registered person or unregistered person; or
Supplier of notified goods or services is registered person or unregistered person.

Notified goods under RCM u/s 9(3) of CGST & u/s 5(3) of IGST

Entry No	Tariff item, sub-heading, heading or Chapter	Description of supply of Goods	Supplier of goods	Recipient of supply	Tariff Notification & Effective Date
(1)	(2)	(3)	(4)	(5)	(6)
1.	0801	Cashew nuts, not shelled or peeled	Agriculturist	Any registered person	4/2017 – 01 Jul 2017
2.	1404 90 10	Bidi wrapper leaves (tendu)	Agriculturist	Any registered person	4/2017 – 01 Jul 2017
3.	2401	Tobacco leaves	Agriculturist	Any registered person	4/2017 – 01 Jul 2017
4.	5004 to 5006	Silk yarn	Any person who manufactures silk yam from raw silk or silk worm cocoons for supply of silk yarn	Any registered person	4/2017 – 01 Jul 2017
4A.	5201	Raw cotton	Agriculturist	Any registered person	43/2017 – 15 Nov 2017
5.		Supply of lottery	State Government, Union Territory or any local authority	Lottery distributor or selling agent. Refer Explanation. (3)	4/2017 – 01 Jul 2017
6.	Any Chapter	Used vehicles, seized and confiscated goods, old and used goods, waste and scrap	Central Government, State Government, Union territory or a local authority	Any registered person	36/2017 – 13 Oct 2017
7.	Any Chapter	Priority Sector Lending Certificate	Any registered person	Any registered person	11/2018 – 28 May 2018

For the purposes of entry No 5, lottery distributor or selling agent has the same meaning as assigned to it in clause (c) of Rule 2 of the Lotteries (Regulation) Rules, 2010, made under the provisions of sub-section (1) of section 11 of the Lotteries (Regulation) Act, 1998 (17 of 1998)

Notified services under RCM u/s 9(3) of CGST

Sl. No.	Category of Supply of Services	Supplier of service	Recipient of Service	Tariff Notification & Effective Date
(1)	(2)	(3)	(4)	(5)
1	Supply of Services by a goods transport agency (GTA) 1ED[, who has not paid central tax at the rate of 6%,] in respect of transportation of goods by road	Goods Transport Agency (GTA)	Any factory registered under or governed by the Factories Act, 1948 (63 of 1948); or any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or any co-operative society established by or under any law; or any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or any body corporate established, by or under any law; or any partnership firm whether registered or not under any law including association of persons; or any casual taxable person; located in the taxable territory	13/2017 – 01 Jul 2017 & 22/2017 – 22 Aug 2017 (1ED) & 29/2018 – 01 Jan 2019
	wef 1-1-2019 Provided that nothing contained in this entry shall apply to services provided by a goods transport agency, by way of transport of goods in a goods carriage by road, to,— a Department or Establishment of the Central Government or State Government or Union territory; or local authority; or Governmental agencies which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 and not for making a taxable supply of goods or services.
2	[Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly. [Explanation f]	An individual advocate including a senior advocate or firm of advocates.	Any business entity located in the taxable territory.	13/2017 – 01 Jul 2017 As corrected by Corrigendum GSR 1199(E), dated 25-9-2017
3	Services supplied by an arbitral tribunal to a business entity.	An arbitral tribunal.	Any business entity located in the taxable territory.	13/2017 – 01 Jul 2017
4	Services provided by way of sponsorship to any body corporate or partnership firm.	Any person	Any body corporate or partnership firm located in the taxable territory.	13/2017 – 01 Jul 2017
5	Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding,— renting of immovable property [Explanation g], and services specified below— services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; transport of goods or passengers	Central Government, State Government, Union territory or local authority	Any business entity located in the taxable territory.	13/2017 – 01 Jul 2017
5A	Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 (12 of 2017)	Central Government, State Government, Union territory or local authority	Any person registered under the Central Goods and Services Tax Act, 2017.	3/2018 – 25 Jan 2018
5B	Services supplied by any person by way of transfer of development rights or Floor Space Index (FSI) (including additional FSI) for construction of a project by a promoter.	Any person	Promoter.	5/2019 – 01 Apr 2019
5C	Long term lease of land (30 years or more) by any person against consideration in the form of upfront amount (called as premium, salami, cost, price, development charges or by any other name) and/or periodic rent for construction of a project by a promoter	Any person	Promoter.	5/2019 – 01 Apr 2019
6	Services supplied by a director of a company or a body corporate to the said company or the body corporate.	A director of a company or a body corporate	The company or a body corporate located in the taxable territory.	13/2017 – 01 Jul 2017
7	Services supplied by an insurance agent to any person carrying on insurance business. [Explnation h]	An insurance agent	Any person carrying on insurance business, located in the taxable territory.	13/2017 – 01 Jul 2017
8	Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company.	A recovery agent	A banking company or a financial institution or a non-banking financial company, located in the taxable territory.	13/2017 – 01 Jul 2017
9	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 covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like.	Author or music composer, photographer, artist, or the like	Publisher, music company, producer or the like, located in the taxable territory.	13/2017 – 01 Jul 2017
10.	Supply of services by the members of Overseeing Committee to Reserve Bank of India	Members of Over-seeing Committee constituted by the Reserve Bank of India	Reserve Bank of India.	33/2017 – 13 Oct 2017
11.	Services supplied by individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm to bank or non-banking financial company (NBFCs).	Individual Direct Selling Agents (DSAs) other than a body corporate, partnership or limited liability partnership firm.	A banking company or a non-banking financial company, located in the taxable territory.	15/2018 - 27 Jul 2018
12.	Services provided by business facilitator (BF) to a banking company	Business facilitator (BF)	A banking company, located in the taxable territory	29/2018 – 01 Jan 2019
13.	Services provided by an agent of business correspondent (BC) to business correspondent (BC)	An agent of business correspondent (BC)	A business correspondent, located in the taxable territory	29/2018 – 01 Jan 2019
14.	Security services (services provided by way of supply of security personnel) provided to a registered person:	Any person other than a body corporate	A registered person, located in the taxable territory.	29/2018 – 01 Jan 2019
	Provided that nothing contained in this entry shall apply to,—
	(i) (a) a Department or Establishment of the Central Government or State Government or Union territory; or
	(b) local authority; or
	(c) Governmental agencies;
	which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 of the said Act and not for making a taxable supply of goods or services; or
	(ii) a registered person paying tax under section 10 of the said Act.

Explanation.—For purpose of this notification

the person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification
"Body Corporate" has the same meaning as assigned to it in clause (11) of section 2 of the Companies Act, 2013
the business entity located in the taxable territory who is litigant, applicant or petitioner, as the case may be, shall be treated as the person who receives the legal services for the purpose of this notification
the words and expressions used and not defined in this notification but defined in the Central Goods and Services Tax Act, the Integrated Goods and Services Tax Act, and the Union Territory Goods and Services Tax Act shall have the same meanings as assigned to them in those Acts
a "Limited Liability Partnership" formed and registered under the provisions of the Limited Liability Partnership Act, 2008 (6 of 2009) shall also be considered as a partnership firm or a firm w.e.f. 22-08-2017 Inserted by Notification No. 22/2017-Central Tax (Rate), dated 22-8-2017
“Legal service" means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.
"renting of immovable property" means allowing, permitting or granting access, entry, occupation, use or any such facility, wholly or partly, in an immovable property, with or without the transfer of possession or control of the said immovable property and includes letting, leasing, licensing or other similar arrangements in respect of immovable property w.e.f. 27-07-2018 Inserted by Notification No. 15/2018-Central Tax (Rate), dated 26-7-2018, w.e.f. 27-7-2018.
"insurance agent" shall have the same meaning as assigned to it in clause (10) of section 2 of the Insurance Act, 1938 (4 of 1938)
provisions of this notification, in so far as they apply to the Central Government and State Governments, shall also apply to the Parliament and State Legislatures w.e.f 01-01-2019 Inserted by Notification No. 29/2018-Central Tax (Rate), dated 31-12-2018, w.e.f. 1-1-2019

Notified services under RCM u/s 5(3) of IGST

Services under RCM u/s 5(3) of IGST in addition to services notified u/s 9(3) of CGST for intra state supply

Sl. No.	Category of Supply of Services	Supplier of service	Recipient of Service	Tariff Notification & Effective Date
(1)	(2)	(3)	(4)	(5)
1	Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.	Any person located in a non-taxable territory	Any person located in the taxable territory other than non-taxable online recipient.	13/2017 – 01 Jul 2017
2	Services supplied by a person located in non- taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India.	A person located in non-taxable territory	Importer, as defined in clause (26) of section 2 of the Customs Act, 1962 (52 of 1962), located in the taxable territory.	13/2017 – 01 Jul 2017

RCM on procurement of goods or services from unregistered persons

Registered (taxable) person is liable to pay tax under RCM on any goods or services or both procured by him from an unregistered person. URD RCM was suspended for a long while now w.e.f 13-10-2017, although the relief could have been given by a Removal of Difficulties order u/s 172, nonetheless a simple suspension of URD Mechanism. The URD RCM is being brought back through the amended version of the famous sec 9(4) of the CGST Act, w.e.f. 01-02-2019. The new subsection reads as ibid;

The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, 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 such supply of goods or services or both.

Sl. No.	Category of Supply of Services	Recipient of Service	Tariff Notification & Effective Date
(1)	(2)	(4)	(5)
1	Supply of such goods and services or both [other than services by way of grant of development rights, long term lease of land (against upfront payment in the form of premium, salami, development charges etc.) or FSI (including additional FSI)] which constitute the shortfall from the minimum value of goods or services or both required to be purchased by a promoter for construction of project, in a financial year (or part of the financial year till the date of issuance of completion certificate or first occupation, whichever is earlier) as prescribed in notification No. 11/ 2017- Central Tax (Rate), dated 28th June, 2017, at items (i), (ia), (ib), (ic) and (id) against serial number 3 in the Table, published in Gazette of India vide G.S.R. No. 690, dated 28th June, 2017, as amended	Promoter	07/2019 – 01 Apr 2019
2	Cement falling in chapter heading 2523 in the first schedule to the Customs Tariff Act, 1975 (51 of 1975) which constitute the shortfall from the minimum value of goods or services or both required to be purchased by a promoter for construction of project, in a financial year (or part of the financial year till the date of issuance of completion certificate or first occupation, whichever is earlier) as prescribed in notification No. 11/ 2017- Central Tax (Rate), dated 28th June, 2017, at items (i), (ia), (ib), (ic) and (id) against serial number 3 in the Table, published in Gazette of India vide G.S.R. No. 690, dated 28thJune, 2017, as amended	Promoter	07/2019 – 01 Apr 2019
3	Capital goods falling under any chapter in the first schedule to the Customs Tariff Act, 1975 (51 of 1975) supplied to a promoter for construction of a project on which tax is payable or paid at the rate prescribed for items (i), (ia), (ib), (ic) and (id) against serial number 3 in the Table, in notification No. 11/ 2017- Central Tax (Rate), dated 28th June, 2017, published in Gazette of India vide G.S.R. No. 690, dated 28th June, 2017, as amended.	Promoter	07/2019 – 01 Apr 2019

the term "promoter" shall have the same meaning as assigned to it in in clause (zk) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);
"project" shall mean a Real Estate Project (REP) or a Residential Real Estate Project (RREP);
he term "Real Estate Project (REP)" shall have the same meaning as assigned to it in in clause (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);
"Residential Real Estate Project (RREP)" shall mean a REP in which the carpet area of the commercial apartments is not more than 15 per cent of the total carpet area of all the apartments in the REP.
the term "floor space index (FSI)" shall mean the ratio of a building's total floor area (gross floor area) to the size of the piece of land upon which it is built.

Time of supply for RCM

Due date of payment of tax under RCM is linked to the time of supply as prescribed u/s. 12 and 13 of CGST Act.

Time of Supply for goods

It shall be earliest of following:

Date of receipt of goods; or
Date of payment entered in books of account or date of debit in bank, whichever is earlier; or
Date immediately after 30 days from date of invoice

Where it is not possible to determine time of supply as above, time of supply shall be date of entry in books of account of recipient of supply.

Time of Supply for services

It shall be earliest of following:

Date of payment entered in books of account or date of debit in bank, whichever is earlier; or
Date immediately after 60 days from date of invoice

Where it is not possible to determine time of supply as above, time of supply shall be date of entry in books of account of recipient of supply.

Mandatory registration for person liable to pay GST under RCM

Section 24(iii) of CGST Act mandates compulsory registration for persons liable to pay tax under RCM. Threshold limit is not applicable to persons liable to pay under RCM. Person having less than ₹ 20 lakh turnover or supplier of exclusively exempt or non-taxable goods /services will also be liable for GST registration if he is obliged to discharge tax under RCM.

Documentation

Section 31(3)(f) mandates registered person liable to pay GST under RCM to issue an invoice in respect of goods and services received by him from unregistered supplier. Such invoices should contain all particulars as prescribed u/s. 31(1) and 31(2) read with GST Invoice Rules to the extent applicable. This would mean registered person procuring goods and services and paying tax under RCM is obliged to mention HSN Codes and Service Accounting Codes of goods or services procured by him.

However, in terms of proviso to Rule 46 of CGST Rules, a registered person may issue a consolidated invoice at the end of a month in respect of purchases from unregistered suppliers exceeding Rs. 5,000 per day.

Rule 36 of Input Tax Credit Rules provides that a registered person shall avail input tax credit on the basis of an invoice raised in accordance with provisions of section 31(3)(f).

Further, registered person liable to pay GST under RCM shall issue a payment voucher at the time of making payment to supplier.