Annexure 9: Levy of tax on Reverse Charge Mechanism (RCM) - Model All India GST Audit Manual 2023 [CBIC] - GST

Annexure 9: Levy of tax on Reverse Charge Mechanism (RCM) Tax is payable by a taxable person in GST. Usually, tax is levied on the outward supplies of goods or services or both by a supplier. But in some specified transactions liability to pay tax gets shifted i.e., in such cases tax is levied on the recipient. This mechanism of liability / leviability to pay tax by the recipient is called Reverse Charge Mechanism (hereinafter referred to as RCM). a. Definition of reverse charge: reverse charge means 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 section 9(3) or section 9(4) of the CGST /SGST Act or under section 5(3) or 5(4) of the Integrated Goods and Services Tax Act . [ sec. 2(98) ] b. Notified supplies under sec 9(3): 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. [sec. 9(3) of the SGST/CGST Act/sec. 5(3) of the IGST Act ]. Notifications issued: Sl. No. Subject Notification No. date 1. Consolidated list of goods on which tax is payable under RCM under section 9(3) of the SGST Act, 2017. CGST Notification No. 04/2017- CT(Rate) dt. 28.06.2017 2. Consolidated list of services on which tax is payable under RCM under section 9(3) of the SGST Act, 2017 CGST Notification No. 13/2017- CT(Rate) dt. 28.06.2017 3. Notification for RCM on goods under section 5(3) of the IGST Act, 2017 4/2017-ITR dated 28.06.2017 as amended time to time. 6. Notification for RCM on services under section 5(3) of the IGST Act, 2017 10/2017-ITR dated 28.06.2017 as amended time to time. c. Supplies received from unregistered person under sec 9(4): The provision of section 9(4) of CGST /SGST Act /5(4) of IGST Act has been amended w.e.f. 01.02.2019. Before this amendment the aforesaid provision upto 31.01.2019 was as follows The State tax/central tax/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. Thus, as per the above provision (s), a registered person was liable to pay tax on RCM whenever he received any taxable supply from an unregistered person. But, on the recommendation of the GST Council, notification under section 11(1) has been issued to exempt payment of tax under section 9(4) of the CGST/SGST Act upto a certain limit (Rs.5000/- per day) of inward supply from 01.07.2017. [CGST Notification No. 08/2017-CT(Rate) dt. 28.06.2017 .] The Gist of the said notification is as under: If the amount of inward supplies of goods or services or both, received in a day by a registered person from all unregistered suppliers, does not exceed Rs.5000/-, no tax is payable on RCM under section 9(4) by a registered recipient. If a registered person receives inward supplies of goods or services or both exceeding Rs. 5000/- in a day from all unregistered suppliers, he is liable to pay tax on RCM basis on the entire amount of such supplies received by him. Example - on 01.08.2017, a registered person X receives goods and/or services from five suppliers. Three of such suppliers are unregistered from whom total supplies have been received to the tune of Rs. 4900/-. In this case, the entire amount of Rs. 4900/- is exempted from payment of any tax u/s 9(4) by virtue of the notification No. 1132-F.T. Now, on the same day another registered person Y has received supplies of goods and/or services from ten suppliers out of whom six are unregistered from whom, total supplies received on that day is of Rs. 5100/. In this scenario, Y is liable to pay tax on the entire value of supplies received from the unregistered persons i.e., on Rs.5100/-. The above provision was effective from 01.07.2017 to 12.10.2017. From 13.10.2017 the provision for payment of tax under section 9(4) of SGST/ CGST Act and section 5(4) of IGST Act have been omitted by amending CGST Notification No. 08/2017-CT(Rate) dated 28.06.2017 and CGST Notification No. 38/2017-CT(Rate) both dated 13.10.17 . CGST Notification No. 08/2017-CT(Rate) dated 28.06.2017 have been finally rescinded w.e.f. 01.02.2019 vide CGST Notification No. 01/2019- CT(Rate) dated 29.01.2019 . d. Supplies received from unregistered person under amended provisions of sec 9(4): Finally, the provision is amended w.e.f. 01.02.2019 as below: Govt. may specify by notification a class of Registered recipients who shall pay tax on RCM on supply received from an unregistered supplier. CGST Notification No. 07/2019-CT(Rate) dated 29.03.2019 have been issued w.e.f. 01.04.2019 to specify that subject to certain conditions a promoter is liable to pay tax under section 9(4) . e. Compulsory Liability of Registration for a person liable to pay tax on RCM: As per the provisions of section 24(iii) of the SGST/CGST Act, persons who are required to pay tax under reverse charge are liable to be registered without any threshold. Hence if any person receives inward supply of goods and/or services for the purpose of business on which tax is payable on RCM, he is liable to be registered without any threshold. f. Tax payable by e-commerce operator [Sec 9(5)]: The Government on the recommendation of the GST Council may notify categories of services wherein the person responsible for payment of taxes in GST would neither be the supplier nor the recipient of supply, but the e-commerce operator through which the notified services are effected. It is important to know that all the provisions of the Act are applicable to such e-commerce operator as if he is the supplier of the specified services and liable to pay tax. The Govt. has notified certain services in this regard vide, CGST Notification No.17/2017-CT (R), dated 28.06.2017 as amended time to time, including services by way of transportation of passengers by a radio-taxi, motor cab, maxi cab and motorcycle, etc. on which tax will be payable by the e-commerce operator u/s 9(5). Where the e-commerce operator does not have a physical presence in the taxable territory, any person representing him in the taxable territory would be liable to pay the taxes. If no such representative exists, the e-commerce operator is liable to appoint such a person to discharge all the obligations. g. Some queries on RCM Sl. No Question Answer 1 A registered person receives service from a Goods Transport Agency (GTA) who doesn t charge any GST. a. Is the registered person liable to pay tax on RCM? b. What would happen if the recipient was unregistered? In that case, who will pay the tax, and at which rate? a. Yes. (vide, Entry No. 1 of CGST Notification No. 13/2017-CT(Rate) dt.28.6.2017 ) b. The recipient, other than an individual or a HUF, is liable to pay tax on RCM. (i) From 01.07.2017 till 21.08.2017, the GTA was liable to pay tax @ 5% without ITC; (ii) from 22.08.2017 to 12.10.2017 the GTA may pay tax @ 5% without ITC or @12% with ITC; and (iii) from 13.10.2017, no tax is payable on such supply to an unregistered individual as it became NIL rated only in such cases vide Entry No. 21A of CGST Notification No. 12/2017-CT(Rate) dated 28.06.2017 . 2 i) XYZ Co. is the title sponsor of a cricket tournament. In this case, is there any supply involved? What is the nature of such supply? (i) Who is the supplier, and who is the recipient? (ii) Who is liable to pay GST? (i) In this case, there is a supply of Sponsorship service (SAC Code-998397) . (ii) Here, the tournament s organizing body is the supplier of such services and XYZ Co. is the recipient. (iii) Here, the tax is payable under RCM by XYZ Co. . 3 A registered person in India imports services (other than OIDAR services provided by a person in a non-taxable territory received by a non-taxable online recipient) from a company in the USA. Is there any liability to pay tax under GST by either of the parties? If the answer is Yes , who is liable to pay tax? Yes. Notification No. 10/2017-ITR dated 28.06.2017 issued under section 5(3) of the IGST Act stipulates that the recipient registered person is liable to pay tax on RCM. Note: In case of OIDAR services provided by a person in a non-taxable territory received by a non-taxable online recipient, the supplier of services located in a non-taxable territory is liable for paying integrated tax. 4 A Panchayat Samithi sells old and used goods to a registered person. In this case who is liable to pay tax ? If such sale would have been effected on say, 01.11.2017 who is liable to pay tax? If the recipient of the supply is a registered person, then such recipient was liable to pay tax on RCM. (Entry No. 6 of CGST Notification No. 04/2017- CT(Rate), dated 28.06.2017 inserted by CGST Notification No. 36/2017-CT(Rate) w.e.f. 13.10.2017) . However, if the said supply is made to an unregistered person, the Panchayat Samithi itself has to charge tax on forward charge basis. 5 A registered person imports goods from Bangladesh. Is he liable to pay tax (IGST) on RCM as in case of importer of services? While importing goods from Bangladesh, he has to pay IGST. But such tax is paid by him in accordance with section 3 of the Customs Tariff Act, 1975 . It is worthwhile to mention that subject to conditions, the importer is eligible to avail ITC on such payment of IGST. 6 A GTA has accrued liability for registration. He thinks that as tax is payable on GTA service by the recipient on RCM basis, he is not required to be registered under GST. Is he correct? As per CGST Notification No. 05/2017-CT dated 19.06.2017 , persons who are only engaged in making supplies of taxable goods and/or services, the total tax on which is liable to be paid on RCM by the recipient under section 9(3) of the CGST /SGST Act are exempted from obtaining registration. But in the case of a supplier of GTA services, the option is there to pay tax on forward charge also. So, it cannot be said that total tax on that service is liable to be paid on RCM by the recipient under section 9(3) . Thus, the person is not correct, and may be required to get himself registered. 7 An Advocate decided not to get registration even though he has crossed the threshold of Rs. 20 lakhs. Is he correct as per GST Law? Yes. Advocate service is exclusively taxable on RCM under section 9(3) . So, the said Advocate is correct in his position. h. Court judgements on RCM under GST Several judgments have been pronounced by different High Courts on reverse charge mechanism under GST. Gist of some important judgements are compiled in the Table below: Sl. No. Issue of the Case Gist of the Judgement 1. Bombay High Court Bai Mamubai Trust and 2 Ors vs Suchitra Wd/Of Sadhu Koraga ... on 13 September, 2019 Bench: S.J. Kathawalla (Courtesy: Indian Kanoon Org) Q.1. Whether GST is liable to be paid on services or assistance rendered by the Court Receiver appointed by Court? A.1 There may be instances where payments received by the Court Receiver may attract GST- (i) Where the Court Receiver is appointed to run the business of a partnership firm in dissolution, the business of the firm under the control of receivership may generate taxable revenues. (ii) Where the Court authorises the Court Receiver to let out the suit property on leave and licence, the licence fees paid may attract GST. (iii) Where the Court Receiver collects rents or profits from occupants of properties under receivership, the same will be liable to payment of GST. (iv) Consideration received for assignment, licence or permitted use of intellectual property. In such cases, GST may be collected from the Court Receiver as a representative assessee under Section 92 and as such the Court Receiver may be required to obtain registration under the relevant GST laws. [Para. 84 85] However, if the Court Receiver is deputed to make an inventory of goods, collect rents with respect to immovable property in dispute or where the property has to be sealed, or the Receiver is appointed to call bids for letting out the premises on leave and licence, the fees or charges of the Court Receiver are exempt. [Para. 86] Q.2. Whether GST is liable to be paid on royalty or payments under a different head paid by a defendant (or in a given case by the plaintiff or third party) to the Court Receiver in respect of properties over which a Court Receiver has been appointed? A.2. The answer is in the affirmative, subject to the payment towards royalty or the payment to the Court Receiver (described by whatever name) is towards or in relation to a supply within the meaning of the CGST Act. [para. 87] Q.3. Specifically, in the facts of the present Suit, where the Plaintiff alleges the Defendant is in illegal occupation of the Suit Premises: Whether there is any supply within the meaning of the CGST Act? Whether payment of royalty for remaining in possession of the Suit Premises, either during the pendency of the Suit, or at the time of passing of the decree, falls within the definition of consideration for a supply chargeable to payment of GST under Section 9 of the CGST Act? A.3. The answer is in the negative. [Para. 88] Q.4. If in any circumstance, GST is payable or applicable to payments made to the Court Receiver, how that statutory liability is to be discharged? Is it to be paid by the Defendant / party in occupation directly, or by the Court Receiver? A.4. Where any payment to be made under an order of the Court attracts GST, the agent appointed by the Court Receiver must have or must obtain CGST registration and make such payment on behalf of the Receiver and indemnify the Receiver for any liability that may fall upon the Receiver under Section 92 of the concerned GST Act. Where no agent is appointed, naturally the Court Receiver will have to obtain registration. [Para. 91 92] 2. Rajasthan High Court - Jodhpur Vinod Kumar Sharam vs State of Rajasthan on 10 April, 2019 read with Ladu Lal Hiran and Ors vs State of Rajasthan And Ors on 28 August, 2018 (i) Whether Royalty Contractors (termed as ERCC Contractors) appointed by the Government of Rajasthan exclusively for collecting the royalty on behalf of the Government from the mining lessee of natural resources without supply of such natural resources can collect GST @ 18% as forward charges the answer is in the negative. (ii) Whether the royalty paid for mining activities as chargeable under the notification dated 28.06.2017 provides that the lease holders are required to pay the GST under the reverse charge mechanism the answer is in the affirmative.