GST Reverse Charge in Case of Supply of Goods and Services

GST Reverse Charge is a mechanism under the Goods and Services Tax (GST) system where the liability to pay tax is shifted from the supplier of goods or services to the recipient. Typically, under GST, the supplier is responsible for collecting and remitting the tax to the government. However, under the reverse charge mechanism (RCM), the recipient is liable to pay the GST directly to the government instead of the supplier.

Table of the Contents

1. Introduction
2. Self-Invoicing Under RCM
3. When Self-Invoice Is to Be Issued?
4. Issue of Consolidated Self-Invoice
5. Conclusion

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1. Introduction

Under GST, tax is normally paid by the supplier. However, in case of certain specified categories of goods and/or services¹, as notified by the Government on the recommendation of the GST Council, tax is payable on reverse charge basis by the recipient.

The term “Reverse charge” as defined in section 2(98) of the CGST Act 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 sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act.

Section 9(3) and 9(4) of the CGST Act state that the Government may, on the recommendations of the Council, by notification, specify:

• categories of supply of goods or services or both – under section 9(3); and
• a class of registered persons in respect of supply of specified categories of goods or services or both received from an unregistered supplier – under section²9(4)

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.

Some of the services which are under RCM under section 9(3) are GTA services, Legal services, Sponsorship services, Security services etc. For a detailed list of the goods and services which are under RCM under section 9(3).

Further, recipient is also liable to pay tax under RCM if he receives specified categories of goods and/or services from unregistered suppliers³. Before 1.2.2019, RCM under this category was applicable in respect of all supplies from unregistered persons. However, with effect from 1.2.2019, only specified class of registered persons has been made liable to pay tax under RCM under this category. The Government has so far notified ‘Promoter’ under this category and the categories of goods and/or services to be procured by them⁴.

Thus, while first category of RCM shall be applicable irrespective of whether the supplier is registered or not, second category of RCM is applicable only if the supplier is an unregistered person.

2. Self-Invoicing Under RCM

Section 31(3)(f) of the CGST Act states that notwithstanding anything contained in sub-section (1) and (2), a registered person who is liable to pay tax under section 9(3) or 9(4) i.e., under reverse charge shall issue an invoice (i.e., self-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. Thus, the recipient shall issue self-invoice in such cases only if he is liable to pay tax under RCM and when the person from whom he is receiving the goods and/or services is unregistered. If he is not liable as such, then self-invoice is not required to be issued.

Under section 31(3)(g), such a person [i.e., a registered person who is liable to pay tax under RCM] shall issue a payment voucher at the time of making payment to the supplier.

3. When Self-Invoice Is to Be Issued?

Rule 47 deals with the time limit for issuing tax invoice. It states that the invoice referred to in rule 46⁵, in the case of the taxable supply of services, shall be issued within a period of 30 days from the date of the supply of service.

4. Issue of Consolidated Self-Invoice

2nd proviso to Rule 46 states that where an invoice is required to be issued under section 31(3)(f), a registered person may issue a consolidated invoice at the end of a month for supplies covered under sub-section (4) of section 9, if the aggregate value of such supplies exceeds rupees five thousand in a day from any or all the suppliers.

5. Conclusion

In this article, we have discussed reverse charge provisions along with the documentary requirements to be complied with in connection therewith. It may happen that though tax has been paid under RCM, self-invoicing was not done or payment voucher was not issued. Proper care should be taken in this regard as during the course of any departmental proceedings, an issue may be raised in this regard and penal provisions may be attracted. Further, the list of RCM goods and services provided in the Annexures to this article will help in proper compliance of GST law at the time of filing of GST return.

1. Section 9(3) of the CGST Act, Section 5(3) of the IGST Act and N. No. 04/2017 for RCM on goods and N. No. 13/2017 for RCM on Services.

2. Substituted vide Central Goods and Services Tax (Amendment) Act, 2018, w.e.f. 01-02-2019 before it was read as under:

“(4) The Central 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.”

3. Section 9(4) of CGST Act and Section 5(4) of IGST Act.
4. Notification No. 07/2019-CT (Rate), dated 27.03.2019.
5. The invoice referred to in Rule 46 means tax invoice issued under section 31.