The levy and collection of tax under the Goods and Services Tax (GST) regime is generally based on the principle of forward charge, where the supplier of goods or services is responsible for collecting and remitting GST. However, to ensure wider tax compliance and coverage of unorganized sectors, the law provides for specific situations where the recipient of the supply is made liable to pay tax - a concept known as the Reverse Charge Mechanism (RCM).
Under the Central Goods and Services Tax (CGST) Act, 2017, the following provisions deal with reverse charge :-
The Government may notify specific categories of goods or services, the tax on which shall be paid by the recipient instead of the supplier. This section is implemented through Notification No. 4/2017- Central Tax (Rate) for goods and Notification No. 13/2017-Central Tax (Rate) / notification no 10/ 2017-Integrated tax (Rate) for services on which recipient is liable to pay tax such as those provided by GTA, advocate, director, government authorities, etc.
Originally, this section provided for RCM on any supply received from an unregistered person by a registered person. However, it has undergone multiple amendments. Currently, RCM under this section is restricted to notified classes of registered persons receiving supplies from unregistered persons, such as real estate promoters procuring goods or services for construction.
This provision shifts the liability to pay tax to electronic commerce operators (ECOs) for certain categories of services supplied through their platform. Examples include transportation of passengers, accommodation services, and restaurant services, where the ECO is deemed to be the supplier for tax purposes.
This Book provides a detailed analysis of the reverse charge mechanism as notified under the GST law. It covers the following key areas :-
Entry-wise discussion of notified services under Section 9(3) and 9(4), including relevant amendments, notifications, and circulars.
Detailed explanation of GTA services, legal services, government services, sponsorship, renting, and services provided by directors, among others.
RCM on supplies through ECOs under Section 9(5), including special cases like cloud kitchens and omnibus transport.
Interpretation issues and practical challenges, including classification of LLPs, treatment of sovereign functions, and ITC restrictions, invoicing requirements, time of supply etc
Electronic Commerce Operator- Section 9(5) vs Section 52.
Summary tables, examples, and charts to support compliance and ease of understanding.
The objective here is to provide readers with a comprehensive yet practical understanding of RCM provisions, their evolution, and their impact on various stakeholders under the GST regime.
Understanding Reverse Charge is not only important from the taxability point of view, but it is also important to understand the mechanism of reversal of Input Tax Credit. Because as per section 17(3), supplies covered under RCM is considered as exempt supplies to determine the reversal of input tax credit. (Discussed in detail in relevant chapter)
First we will focus on section 9(3) of the CGST Act and section 5(3) of the IGST Act. These sections are reproduced below :-
The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such 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 the supply of such goods or services or both
By exercising powers conferred by this sub section government has issued notification 04/2017-CTR, notification 13/2017-CTR and notification 10/2017- Integrated Tax (Rate) to provide for list of supplies covered under RCM. These notifications have been amended from time to time. We will discuss each of the supplies covered in these notifications.