REVERSE CHARGE UNDER ‘IGST’ ACT

[Mr. M. GOVINDARAJAN]

Reverse Charge

Section 2(24) of the Integrated Goods and Services Tax Act, 2017 (‘Act’ for short) provides that words and expressions used and not defined in this Act but defined in the Central Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act shall have the same meaning as assigned to them in those Acts.  The expression ‘reverse charge’ has not been defined in the Act.  Therefore we may take the definition as contained in CGST Act, 2017.  Section 2(98) of CGST Act defines the phrase ‘reverse charge’ as the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act.

Reverse charge on specified goods or services or both

Section 5(3) of the Act provides that 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.

Reverse charge on the supply from non registered persons

Section 5(4) of the Act provides that the integrated 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.

Vide Notification No. 32/2017-Central Tax (Rate), dated 13.10.2017, the Central Government exempted the inter-State supply of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the integrated tax leviable thereon under section 5(4) of the said Act.  The said time line has been extended to by the Notifications as mentioned below-

• Vide Notification No.11/2018-IGST (Rate), dated 23.03.2018 the exemption was granted up to 30.06.2018;
• Vide Notification No. 13/2018-IGST (Rate), dated 29.06.2018 the exemption was further extended up to 30.09.2018;
• Vide Notification No. 23/2018-IGST (Rate), dated 06.08.2018, the exemption is further granted for a long term i.e., up to 30.09.2019.

The Integrated Goods and Services Tax (Amendment) Act, 2018 substituted new section for section 5(4).  The newly substituted section 5(4) provides that 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.

However this section has not yet notified.

Reverse charge on specified goods

Vide Notification No. 04/2017-IGST (Rate), dated 28.06.2017 the Central Government specified goods that are covered on inter-State supply under Section 5(3) of the Act with effect from 01.07.2018.  The list of such goods (as amended from time to time) is furnished in the following table-

S. No.	Tariff item, sub-heading, heading or Chapter	Description of supply of Goods	Supplier of goods	Recipient of supply
(1)	(2)	(3)	(4)	(5)
1.	0801	Cashew nuts, not shelled or peeled	Agriculturist	Any registered person
2.	1404 90 10	Bidi wrapper leaves (tendu)	Agriculturist	Any registered person
3.	2401	Tobacco leaves	Agriculturist	Any registered person
4.	5004 to 5006	Silk yarn	Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn	Any registered person
4A.	5201	Raw cotton (with effect from 15.11.2017)	Agriculturist	Any registered person
5.	-	Supply of lottery.	State Government, Union Territory or any local authority	Lottery distributor or selling agent. Explanation.- For the purposes of this entry, 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 (Regulations) Act, 1998 (17 of 1998).
6.	Any Chapter	Used vehicles, seized and confiscated goods, old and used goods, waste and scrap (with effect from 13.10.2017)	Central Government, State Government, Union territory or a local authority	Any registered person
7.	Any Chapter	Priority Sector Lending Certificate (with effect from 28.05.2018)	Any registered person	Any registered person

 Reverse charge on specified services

Vide Notification No. 10/2017-IGST (Rate), dated 28.06.2017 the Central Government notified the specified services that are covered on Inter-State supplies applicable under reverse charge under section 5(3) of the Act with effect from 01.07.2018.  The list of such services (as amended from time to time) is furnished in the following table-

Sl. No.	Category of Supply of Services	Supplier of service	Recipient of Service
(1)	(2)	(3)	(4)
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.
2	Supply of Services by a goods transport agency (GTA) in respect of transportation of goods by road to- (a) any factory registered under or governed by the Factories Act, 1948(63 of 1948);or (b) 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 (c) any co-operative society established by or under any law; or (d) 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 (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person.	Goods Transport Agency (GTA) *[who has not paid integrated tax at the rate of 12%] * inserted with effect from 22.08.2017.	(a) Any factory registered under or governed by the Factories Act, 1948(63 of 1948); or (b) 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 (c) any co-operative society established by or under any law; or (d) 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 (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person; located in the taxable territory.
3	**Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly. Explanation.- “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.	An individual advocate including a senior advocate or firm of advocates.	Any business entity located in the taxable territory.
4	Services supplied by an arbitral tribunal to a business entity.	An arbitral tribunal.	Any business entity located in the taxable territory.
5	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.
6	Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, - (1) renting of immovable property, and (2) services specified below- (i) 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; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers.	Central Government, State Government, Union territory or local authority	Any business entity located in the taxable territory.
6A	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). (with effect from 25.01.2018)	Central Government, State Government, Union territory or local authority	Any person registered under the Central Goods and Services Tax Act, 2017 read with clause (v) of section 20 of Integrated Goods and Services Tax Act, 2017.
7	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.
8	Services supplied by an insurance agent to any person carrying on insurance business.	An insurance agent	Any person carrying on insurance business, located in the taxable territory.
9	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.
10	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.
11	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.
12	Supply of services by the members of Overseeing Committee to Reserve Bank of India (with effect  from 13.10.2017)	Members of Overseeing Committee constituted by the Reserve Bank of India	Reserve Bank of India.]
13	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) (with effect from 26.07.2018)	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.

** - Corrected vide notification dated 25-9-2017, before it was read as, "Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity."

Registration

Section 20(v) of the Act provides that the provisions of CGST Act for registration will be applicable for IGST Act.

Section 24 of CGST Act provides for compulsory registration under CGST Act.  Section 24(iii) provides that the persons who are required to pay tax under reverse charge is compulsorily liable to register under CGST.

The threshold exemption of ₹ 20 lakhs or ₹ 10 lakhs (to special category of States but the CGST (Amendment) Bill, proposes to increase this limit to ₹ 20 lakhs) is not applicable to the reverse charge mechanism. 

Composition scheme

 Section 20(ii) of the Act provides that the provisions of CGST for composite scheme shall be applied to IGST Act also.  Accordingly the taxpayers paying tax on the basis of reverse charge under GST are not eligible for composition scheme.

Time of supply of goods

Section 20(iii) of the Act provides that the time and value of the supply for the purposes of this Act the provisions in CGST Act will apply.  Accordingly Section 12(3) of CGST Act will be applicable to time of supply of goods for IGST and 13(3) of CGST Act will be applicable to the time of supply of services for IGST.

Section 12(3) of the CGST Act provides that  in case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earliest of the following dates, namely:-

•  the date of the receipt of goods; or
• the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
• the date immediately following 30 days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier.

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

Time of supply of services

Section 13(3) of CGST Act provides that In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:–

• the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
• the date immediately following 60 days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier.

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

In case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier.

Invoice

Section 20(vi) of the Act provides that the provisions of CGST Act and rules  for issuing invoice shall be applicable to IGST also.

The supplier is not to issue invoice for the goods or services which are coming under reverse charge mechanism.  Since the tax is payable by the recipient he is to issue a self invoice for the purpose of IGST.  Section 31(3)(f) of CGST Act  provides that  a registered person who is liable to pay tax section 5(3) or 5(4) shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both.

The second proviso to Rule 46 provides that where an invoice is required to be issued section 31(3)(f) of CGST Act, a registered person may issue a consolidated invoice at the end of a month for supplies covered under section 5(4), the aggregate value of such supplies exceeds rupees five thousand in a day from any or all the suppliers. 

Payment of tax

Section 20(ix) of the Act provides that the provisions of CGST Act for payment of tax shall be applicable to IGST also.

Payment of Tax under reverse charge mechanism shall be paid through Electronic Cash Ledger. Reverse Charge liability cannot be paid through Input Tax Credit.  Section 31(3) (g) CGST Act provides that a registered person who is liable to pay tax under section 5(3) or 5(4) shall issue a payment voucher at the time of making payment to the supplier. The said payment voucher    shall contain the details as specified in Rule 52 of CGST Rules, 2017.  The payment of tax on reverse charge is to be paid on or before 20^th of the succeeding month.  The payment shall be made only in cash and not to be adjusted with the input tax credit.  The reverse charge is payable on advance payment received by a registered person also.

Input tax credit

Section 20(iv) of the Act provides that the provisions of CGST Act and rules for the purpose of availing input tax credit are also applicable to IGST.

A tax paid on reverse charge basis is eligible for input tax credit.  The registered person is required to fill the details regarding reverse charge amount in his GSTR-1 in the specific column mentioned for that in order to avail the input tax credit for the same.

Advance Ruling – case law

In ‘Bahl Paper Mills Limited’ [ 2018 (6) TMI 431 - AUTHORITY FOR ADVANCE RULINGS, UTTARAKHAND ] – Ruling No.03/2018-19, dated  04.05.2018, the Authority for Advance Ruling, Uttarakhand considered the issue ‘Whether under Reverse Charge Mechanism, IGST should be paid by the importer on ocean freight in case of CIF basis contract, when service provider and service recipient both are outside the territory of India.’   The Authority observed that vide notification no. 8/2017-IGST (Rate), dated 28.06.2017and notification No. 10/2017-IGST (Rate), dated 28.06.2017 an importer is required to pay IGST on the ocean freight.  Therefore the Authority ruled that as on date, even if the importer has already paid IGST on CIF value imported goods, he is still required to pay IGST on ocean freight.  The Authority further ruled that input tax credit can be taken on the invoice issued in this regard.