1. Reverse Charge Mechanism
CA Aditya Dhanuka
11th October 2017

2. What is Reverse Charge
Reverse Charge system is whereby the liability to pay tax though generally is on the supplier of goods or provider of service, but is shifted on the recipient of goods or the service. Under the reverse charge mechanism, the recipient of the goods or service is liable to pay tax and then take credit of the same.
The reverse charge system is adopted where monitoring and collection of tax from the person making the supply is difficult and consumer of such supplies is better placed for payment of taxes.
Under Central Goods and Services (CGST) Act, the term “Reverse Charge” under section 2(98) has been defined 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 of CGST Act, or under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax (IGST) Act.

3. INCLUSION OF REVERSE CHARGE
“aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;
“output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis;

4. LEVY AND COLLECTION OF REVERSE CHARGE- SEC 9(3) & SEC5(3)
Section 9(3) of CGST Act gives power to the government to notify the categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of goods or services or both. All the provisions of this Act shall apply to such recipient as if he is the person liable for paying tax in relation to such supply.
By virtue of this section, the Government has notified the list of goods and services on which tax shall be paid on reverse charge basis. The list of goods has been notified under the following notification:
Notification No. 04/2017 of Central tax (Rate)
Notification No. 04/2017 of Integrated Tax (Rate)
Notification No F.T. of West Bengal Goods and Services Tax
The list of Services has been notified under the following notifications:
Notification No. 13/2017 of Central tax (Rate)
Notification No. 10/2017 of Integrated Tax (Rate)
Notification No F.T. of West Bengal Goods and Services Tax

5. List of Goods under Reverse Charge
LEVY AND COLLECTION OF REVERSE CHARGE- SEC 9(3) & SEC5(3) cont.
List of Goods under Reverse Charge
Description of Goods
Supplier of Goods
Recipient of Supply
Cashew nuts, not shelled or peeled
Agriculturist
Any Registered Person
Bidi Wrapper Leaves (Tendu)
Tobacco leaves
Silk Yarn
Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn
Supply of Lottery
State Government, Union Territory or Local Authority
Lottery Distributor or Selling Agent

6. List of Services under Reverse Charge
LEVY AND COLLECTION OF REVERSE CHARGE- SEC 9(3) & SEC5(3) cont.
List of Services under Reverse Charge
Category of Service
Supplier of Service
Recipient of Service
Services by a Goods Transport Agency (GTA) in respect of transportation of goods by road
Goods Transport Agency
Registered Factory
Registered Society
Cooperative Society established under any Law
Registered person under GST
Body corporate
Partnership Firm whether or not registered (including AOP)
Casual taxable person
in taxable territory
Legal services
Individual advocate including senior advocate, firm of advocates
Business entity in taxable territory with an aggregate turnover up to twenty lakh rupees (read with notification 12/2017)
Services by Arbitral Tribunal
An Arbitral Tribunal
Business entity in taxable territory
Sponsorship Service
Any Person
Any body Corporate or Partnership Firm in taxable territory

7. List of Services under Reverse Charge
LEVY AND COLLECTION OF REVERSE CHARGE- SEC 9(3) & SEC5(3) cont.
List of Services under Reverse Charge
Category of Service
Supplier of Service
Recipient of Service
Services by the Central Government, State Government, Union territory or local authority excluding :
Renting of immovable property
Services by Department of Post( speed post, express parcel, life insurance and agency service)
Services in relation to aircraft or vessel
Transport of goods or passengers
Central Government,
State Government, Union territory or local authority
Business entity in taxable territory
Director’s Service
Director of a company or body corporate
To any company or body corporate
Insurance Agent’s Service
Insurance Agent
Insurance business in taxable territory
Recovery Agent’s Service
Recovery Agent
Banking Company, Financial Institution or NBFC in taxable territory
Transfer or Permit of use of Copyright
Author, music composer, photographer, artist or the like
Publisher, Music Company, producer or the like in taxable territory

8. LEVY AND COLLECTION OF REVERSE CHARGE- SEC 9(3) & SEC5(3) cont.
Additional List of services included in Notification No. 10/2017 of Integrated Tax (Rate)
Category of Service
Supplier of Service
Recipient of Service
Any service by person located in non-taxable territory
Person located in non-taxable territory
Any person located in taxable territory other than non-taxable online recipient
Transportation of Goods by Vessel from outside India up to Customs Station in India
Importer located in taxable territory

9. LEVY AND COLLECTION OF REVERSE CHARGE- SEC 9(4) & SEC5(4)
As per section 9(4) of CGST Act, tax on supply of taxable goods or services or both by an unregistered person, to a registered person shall be paid by such registered person on reverse charge basis. All the provisions of this Act shall apply to such recipient as if he is the person liable for paying tax in relation to such supply.
The Government has exempted the tax on reverse charge basis on Intra-state supplies received by a registered person from all its unregistered suppliers if the aggregate value of such supplies in a day does not exceed rupees 5000 under:
Notification No. 08/2017 of Central Tax (Rate)
Notification No F.T. of West Bengal Goods and Services Tax Act
No monetary limit of rupees 5000 has been prescribed under IGST Act, Therefore, in case of inter-State supplies, supplies of even less than 5000 will attract tax on reverse charge basis, if supplier is unregistered and recipient is registered.

10. LEVY AND COLLECTION OF REVERSE CHARGE- SEC 9(5) & SEC5(5)
Special provisions relating to Electronic Commerce Operator
In case of certain supplies of services through Electronic Commerce Operator, tax is payable neither by service provider nor by service recipient but by Electronic Commerce Operator. This is in terms of Section 9(5) of CCST/SGST Acts and similar provision in IGST Act.
In this connection following categories of services have been notified vide Notification No. 17/2017 of Central Tax (Rate), where Electronic Commerce Operator is liable for paying GST:
services by way of transportation of passengers by a radio-taxi, motor cab, maxi cab and motor cycle;
Services of providing accommodation in hotels, inns, guest house, clubs, campsites, etc. if the main supplier is not liable to get registration under CGST Act.

11. CAN TAX UNDER REVERSE CHARGE BE PAID THROUGH E-CREDIT LEDGER USING INPUT TAX CREDIT ?
As per sub-section (62) of section 2 of CGST Act, 2017, “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—
The integrated goods and services tax charged on import of goods.
The tax payable under the provisions of sub-sections (3) and (4) of section 9.
The tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act.
The tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act.
The tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act, but does not include the tax paid under the composition levy.

12. CAN TAX UNDER REVERSE CHARGE BE PAID THROUGH E-CREDIT LEDGER USING INPUT TAX CREDIT ?
As per sub-section (82) of section 2 of CGST Act, 2017, “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.
Hence, tax payable under reverse charge is excluded from the definition of output tax and included in the definition of input tax.
As per sub-section (4) of section 49 of CGST Act, 2017, the amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the IGST Act, 2017.
Therefore, tax liability under reverse charge mechanism cannot not be discharged by using e-credit ledger.

13. CHANGES IN REVERSE CHARGE FROM PREVIOUS REGIME
There is no provision for partial reverse charge in GST.
Certain services which previously were subject to reverse charge in service tax are now under forward charge in GST:
Works Contract Service
Manpower Supply
Rent-a-cab
Availing of any unregistered supply is now subject to Reverse Charge.
As per CENVAT Credit Rules, 2004, sub-rule (7) of rule 4, the CENVAT credit in respect of input service, shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or as the case may be, challan referred to in Rule 9 (Documents and Accounts) implying that if the tax is paid in the current month the input can be utilised in the same month itself, whereas, sub-section (2)( c ) of section 16, of the CGST Act, 2017 states the same provision i.e. availability of input tax credit on actual payment of taxes to the government, but the same is not practically possible as payment of tax under GST can only be done through GSTR 3 or 3B, of which the due date is 20th of the succeeding month. Therefore, under GST, the input credit cannot be utilised in the same month.

14. TIME OF SUPPLY IN REVERSE CHARGE- SEC 12(3) & 13(3)
Time of Supply of Goods
Time of Supply of Service
Section 12(3)
Time of supply shall be earliest of the following dates:
the date of the receipt of goods
the date of payment entered in the books of accounts of the recipient
the date on which the payment is debited in his bank account
the date immediately following thirty days from the date of issue of invoice
Provided if the above conditions are not satisfied, then time of supply shall be the date of entry in the books of accounts of the recipient of supply.
Section 13(3)
Time of supply shall be earlier of the following dates:
the date of payment entered in the books of accounts of the recipient
the date immediately following sixty days from the date of issue of invoice
Provided if the above conditions are not satisfied, then time of supply shall be the date of entry in the books of accounts of the recipient of supply.
Provided in case of supply by associated enterprise located outside India, time of supply shall be earlier of date of entry in books of recipient or date of payment, whichever is earlier.

15. TIME OF SUPPLY IN REVERSE CHARGE- ILLUSTRATION ON GOODS
Serial No.
Date of Receipt of Goods
Date of Issue of Invoice
Date immediately following 30 days from the date of issue of Invoice
Date on which payment is entered in recipient’s books of accounts
Date on which payment is credited to recipient’s bank account
Date of Payment to the Recipient
Time of Supply 1
5th October, 2017
9th September,
10th October, 2017
15th October, 2017
20th October,
15th October, 2
20th October, 2017
14th September,
30th October, 2017
25th October, 3
15th November, 2017
20th November, 2017
5th November, 2017
10th November,
5th November, 4
30th November, 2017
25th October, 2017
25th November, 2017
20th November,
15th November,

16. TIME OF SUPPLY IN REVERSE CHARGE- ILLUSTRATION ON SERVICES
Serial No.
Date of Issue of Invoice
Date immediately following 60 days from the date of issue of Invoice
Date on which payment is entered in recipient’s books of accounts
Date on which payment is credited to recipient’s bank account
Date of Payment to the Recipient
Time of Supply 1
15th August, 2017
15th October, 2017
30th October, 2017
25th October, 2017 2
20th September, 2017
20th November, 2017
05th November, 2017
10th November,
05th November, 3
25th December, 2017
20th December, 2017
15th December,

17. REGISTRATION UNDER REVERSE CHARGE – SEC 24(iii)
As per section 24(iii), persons who are required to pay tax under reverse charge are required to get compulsorily registered irrespective of their aggregate turnover.
The government has power to grant exemption from tax under section 11 of CGST Act. By virtue of this section the Government has issued the following notifications:
Notification No. 05/2017 of Central Tax
Notification No F.T. of West Bengal Goods And Services tax Act
The above mentioned notifications state that any person who is only engaged in making supplies of taxable goods or services or both on which the tax is liable to be paid on reverse charge basis by the recipient shall be exempted from obtaining registration.

18. COMPLIANCE PROVISONS UNDER REVERSE CHARGE
As per Sec 31(3)(f), any registered person liable to pay tax under reverse charge and who receives taxable goods from unregistered person shall issue an invoice.
As per the first proviso of Rule 46 of CGST Rules 2017, the registered person may issue a consolidated invoice at the end of a month for supplies received from an unregistered person.
As per Section 31(3)(g) of CGST Act, a registered person paying tax under reverse charge shall issue a payment voucher at the time of making payment to its supplier.
Rule 46 of CGST rules, also require the invoice issued by the supplier to state whether the tax is payable on reverse charge basis
INVOICE
The service recipient who pays tax under reverse charge can avail input tax credit if the services are used for furtherance of business.
INPUT TAX CREDIT
In terms of section 49(4) read with Section 2(82) of the CGST Act and read with Rule 85(4) of the CGST rules, a person required to pay the tax under reverse charge has to pay the tax by cash through electronic cash register only and he is not entitled to pay the tax by utilising Input Tax Credit.
PAYMENT

19. RETURN COMPLIANCE
1. As per Section 38(2) of the CGST Act, a registered person is required to furnish details of inward supplies of goods or services or both on which the tax is payable on reverse charge basis in FORM GSTR-2 by 15th of the succeeding month to which it relates.
2. As per Rule 36(2) of CGST Rules 2017, the recipient paying tax under reverse charge can avail the credit of such tax only after furnishing FORM GSTR-2
3. The details furnished under FORM GSTR-2 will be auto populated in FORM GSTR-3 by 15th of the succeeding month to which it relates.
4. Return for the months July-December, 2017 is to be furnished in FORM GSTR-3B which will contain the details of inward supplies on which tax shall be paid under reverse charge.

20. CLARIFICATIONS ISSUED BY THE GoI
As per notification 10/2017, a registered person need not discharge reverse charge liability under section 9(4) on purchases of second hand goods made from unregistered person, if tax on outward supply of such goods subsequently is discharged by such registered person.
As per Press released, dated 13th July, 2017, sale of old jewellery by an individual to a jeweller will not attract the provisions of section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases. However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply.

21. PRACTICAL ISSUES UNDER REVERSE CHARGE
In case of any supplies received form a composition dealer, he would be issuing a bill of supply without charging any tax. Will this transaction entail the liability of reverse charge on the recipient of supply?
Will a composition dealer pay tax under reverse charge if he receives any supply from an unregistered vendor?
If a vendor is unregistered and if he receives any supply from an unregistered vendor, would he be liable to pay tax under Reverse Charge mechanism?
In terms of notification 8/2017, which exempts unregistered supplies of up to INR 5,000/- per day, would the same include non taxable supplies too?

22. PRACTICAL ISSUES UNDER REVERSE CHARGE
In terms of notification 8/2017, which exempts unregistered supplies of up to INR 5,000/- per day, can the benefits of this provision be taken by paying in instalments for a higher bill from an unregistered supplier?
In case of supplies on which tax is to be paid on reverse charge, how is the self invoicing to be done? Is the self invoice to be made on vendor basis? Payment basis? Expense wise? Or a consolidated self invoice for all the unregistered inward supplies during the tax period?
In case of payments to be made in respect of inward supplies received under sub-section (3) and sub-section (4) of section 9, of CGST Act, 2017, a payment voucher is to be issued to the vendor, and such a series is to be maintained and the said series is also to be furnished in Table 13 of GSTR 1. Can the actual payment voucher series (Including payments made against registered inward supplies) be furnished there?

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