39. Can the liability to pay GST on the supplies covered under RCM be shifted on the supplier through an agreement?
One of the recurring questions in GST compliance is whether a recipient's liability to pay tax under Reverse Charge Mechanism (RCM) can be shifted to the supplier by way of a contractual agreement. This question arises due to commercial negotiations where suppliers may agree to absorb all tax costs, or recipients may wish to avoid procedural hassles.
Under the GST law, RCM is a statutory imposition, meaning that liability to pay tax is fixed by law, not by the parties to the transaction. Specifically, Section 9(3) and Section 9(4) of the CGST Act, 2017, and Section 5(3) and 5(4) of the IGST Act, 2017, clearly state that "the tax shall be paid by the recipient of supply" in respect of notified goods and services. This obligation is not dependent on mutual agreement but flows directly from the statute.
It is a settled principle of law that a statutory liability cannot be altered, waived, or modified by private contracts. Even if the supplier and recipient enter into an agreement stating that the supplier shall bear the GST liability under RCM, such an arrangement will have no bearing on the statutory responsibility cast upon the recipient under the CGST Act.
The Honourable Allahabad High Court in case of Devendrakumar Singh Contractors vs Union of India (2025) held that the agreement between the petitioner and the supplier, stating that the supplier would bear the GST, could not absolve the petitioner from the statutory liability to pay GST under the reverse charge mechanism.