Part 16- GST Reverse Charge

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1. FCA, B.COM, MBA, LLB

2. Reverse charge under “GST” CA Sanjiv Nanda, Smarthead Consultants

3. What is Reverse Charge? “GST” Reverse Charge Mechanism (RCM) basically means that the “GST” is to be paid and deposited with the Government by the recipient of Goods/ Service and not by the Supplier of Goods/ Service. Under the normal mechanism of levy of “GST” , The Receiver of Good/ Service pays the “GST” to the supplier of Goods/ Service and such supplier then deposited the “GST” with the Government.( After taking the benefit of input tax credit). However, under the Reverse Charge Mechanism, the “GST” is paid and deposited by the recipient by the recipient with the Government . On behalf of the supplier of Service. CA Sanjiv Nanda, Smarthead Consultants

4. CA Sanjiv Nanda, Smarthead Consultants Receiver Supplier Govt Makes Payment + GST Deposits GST with Govt. Normal Mechanism of Levy Of GST

5. CA Sanjiv Nanda, Smarthead Consultants Receiver Supplier Govt Makes Payment Without GST Deposits GST with Govt. on behalf of Supplier Reverse Charge Mechanism Of levy of GST

6. CA Sanjiv Nanda, Smarthead Consultants Reverse Charge under Section 9(4) – Supply From Unregistered to Registered Person :- Mechanism would get applicable i.e. the “ GST” would be required to be paid by the Registered Person directly to the Govt. on behalf of the supplier. However, in case of supply of exempt goods or service, “GST” under Reverse Charge Mechanism shall not be applicable. This can be explained with the help of an example. Example :- A Registered person stays in a hotel whose room tariff is less than Rs. 1000. Section 9(4) would not be applicable since the service by a hotel having declared value less than RS. 1000. per day or equivalent is an exempt service .

7. When is Reverse Charge Applicable ? CA Sanjiv Nanda, Smarthead Consultants It is pertinent to note here that the provisions of Reverse Charge Under Section 9(4) are Applicable only for within the same state. The provision of Reverse Charge under this Section are not applicable to Inter- state supplies inter- state supplier cannot be made by unregistered suppliers. Reverse Charge provision would not be Applicable if the Aggregate value of such supplier of Goods or Service or both received by a taxable person from any or all the suppliers, who are not registered, Does not exceed Rs. 5,000 in a day. In other words, if the total supply of goods or service from unregistered person does not exceed Rs. 5,000 in a day, then the provisions of reverse charge would not be applicable . Example :- Karan Batra gets his website redesigned from Rajan based in New Delhi (an unregistered person under GST) 15 th July for Rs. 4000. He also hires Sahil , a digital market based in New Delhi (Unregistered under GST) for promotion of his website on 15 th July for Rx. 3000 .

8. Good & Service By Govt. of Reverse Charge Mechanism Which are notified by the Government Reverse Charge Under Section 9 (3) is applicable for both Inter- state as well as same state transactions . CA Sanjiv Nanda, Smarthead Consultants Applicability of Reverse Charge Applicable in all cases of supply from unrequested Dealer to Registered Dealer Section 9(4) Applicable in all cases of supply of specified goods & service which are notified by the Govt. Section 9(3)

9. S.NO DESCRIPTION OF SUPPLY SUPPLIER OF GOODS RECIPIENT OF SUPPLY 1. Cashew nuts, not shelled or peeled Agriculturist Any Registered person 2. Bidi wrapper leaves ( tendu ) Agriculturist Any Registered person 3. Tobacco Leaves Agriculturist Any Registered person 4. Silk Yarn Any person who manufactures si k yarn from raw silk worm cocoons for supply of silk yarn, Any Registered person Reverse Charge on Goods Under Section 9(3) The Goods on which “GST” shall under Reverse Charge have been announced vide Notification No 04/2017 date 26 th June 2017 and these have been mentioned below for ready reference. 5.Nt Supply of Lottery State Govt. Union Territory or Local Authority Lottery Distributer or Selling Agent

10. Reverse Ch arge or Service Under Section 9(3) The Services on which “GST” shall be levied under Reverse Charge have been mentioned below for ready reference. S.NO DESCRIPTION OF SUPPLY OF SERVICE SUPPLIES OF GOODS RECIPIENT OF SUPPLY 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 Non-taxable territory. Any person located in taxable territory other than non- taxable online recipient 2. Supply of Services By a Goods Transport Agency (GTA) Goods Transport Agency (GTA) -Any factory register under or governed by the Factories Act 1948, or Registration Act, 1860 or under any other law for the time being in force in any part of India, or -Any co-operative society established by or under any law. Or

11. Reverse Ch arge or Service Under Section 9(3) CA Sanjiv Nanda, Smarthead Consultants S.NO DESCRIPTION OF SUPPLY OF SERVICE SUPPLIES OF GOODS RECIPIENT OF SUPPLY -Any person registered under CGST Act or SGST Act or IGST. Act or UTGST Act, or -Any body co-operate establish, by or under any law including association of person, or Any Casual taxable person Located in the taxable territory 3. Service provided by an individual advocate including a Senior Advocate by way of Representational service before Court Tribunal or Authority by way of legal service, to a Business Entry Any individual Advocate including a Senior Advocate or firm of Advocate -Any Business entry located in the taxable territory.

12. Reverse Charge or Service Under Section 9(3) S.NO DESCRIPTION OF SUPPLY OF SERVICE SUPPLIES OF GOODS RECIPIENT OF SUPPLY 4) Service provided by an Arbitral Tribunal to a Business Entity Any Arbitral Tribunal Any Business entity located in the taxable territory 5) Sponsorship service Any Person A body Corporate or Partnership Firm located in the taxable territory 6) Service provided or agreed to be provided 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. A Company or a Body Corporate 7) Service provided or agreed to be provided by an insurance Agent. An Insurance Agent Any Person carrying on the insurance Business 8) Service provided or agreed to be provided by an recovery Agent. An Recovery Agent A Banking Company or a Financial institution or a NBFC

13. Reverse Charge or Service Under Section 9(3) CA Sanjiv Nanda, Smarthead Consultants S.NO DESCRIPTION OF SUPPLY OF SERVICE SUPPLIES OF GOODS RECIPIENT OF SUPPLY 9) Service provided by Govt. or Local Authority Excluding:- -Renting of Immovable Property, and -Service Specified below Service by the Department of posts by way of speed Post, express parcel post, life insurance, and agency service provided to a person other than central Govt. State Govt. or Union Territory or Local Authority. -Service in relation to an aircraft or a vessel, inside or outside the precincts of an airport of a port -transport of Goods or Passengers . Central Govt. , State Govt. , Union territory or Local Authority Any Business entity located in the taxable territory

14. Reverse Charge or Service Under Section 9(3) CA Sanjiv Nanda, Smarthead Consultants S.NO DESCRIPTION OF SUPPLY OF SERVICE SUPPLIES OF GOODS RECIPIENT OF SUPPLY 10) Taxable territory by way of transportation of goods by a vassel from a place outside India up to customs station of clearance in India. A person located in non-taxable territory Importer, as Clause 28 of Section 2 of the Customs Act, 1962 located in the taxable territory . 11) Supply of Service by an author, music composer, photographer, artist or the like by way of transfer or permitting the use of a copyright covered under Section 13(1) (a) of the Copyright Act 1957 . Author or Music Composer Photographer, Artist etc. Publisher , Music Company Producer.

15. Time of Supply For Reverse Charge under GST CA Sanjiv Nanda, Smarthead Consultants For the Levy of Reverse Charge under “GST” , It’s very important to ascertain the time of supply as “GST” would be required to be deposited with the Govt. within 20 days from the end of the month in which the service were provided . Time of supply in case of supply of Goods:- Time of Supply in case of Supply of Goods The date of receipt of goods, or The date of payment, or The date immediately after 30 day from the date of issue of invoice by the supplier. If it’s not possible to determine the time of supply under (a), (b) or© above, the time of supply shall be the date of entry in the books accounts of the recipient .

16. Time of Supply For Reverse Charge under GST CA Sanjiv Nanda, Smarthead Consultants Example :- Determine the time of supply in the below mentioned case of supply of Goods:- Date of Receipt of Goods : 14 th Oct Date of Payment : 19 th Dec. Date of Invoice: 1 st Nov. Date of entry in Books: 18 th Oct Solution:- In the above mentioned case the time of supply would be 14 th Oct. However, in case (a), (b), © are not available, the date of entry in the books i.e 18 th Oct would be considered.

17. Time of Supply For Reverse Charge under GST Time of Supply In Case Of Supply Of Service : In case of Reverse Charge, the time of Supply would be the earliest of the following The date of Payment, or The date immediately after 60 days from the date of issue of invoice by the suppler. If it’s not possible to determine the time of supply under (a) or (b) above, the time of supply be the of entry in the books of accounts of the recipient Example:- . Determine the Time of Supply in the below mentioned case of supply of Goods:- Date of payment : 10 th August. Date of invoice: 21 st July. Date of Entry in book : 1 st August CA Sanjiv Nanda, Smarthead Consultants

18. Time of Supply For Reverse Charge under GST CA Sanjiv Nanda, Smarthead Consultants Date of Payment :- The Date on which the payment in debited from his bank account OR. The Date on which the recipient entered the payment in his books. Solution :- In the above mentioned case the time of supply would be 10 th August. However, in case (e), (b) are not available, the date of entry in the books i.e. 1 st August would be considered.

19. Character tics Of Reverse Charge CA Sanjiv Nanda, Smarthead Consultants What happens if the receiver of goods and/ or service is required to pay tax under Reverse Charge but is not a registered dealer ? All persons who are required to pay tax under reverse charge have to register for “GST” Irrespective of the threshold. Threshold : Turnover in a financial year exceeds Rs. 20 Lakhs (Rs.10 lakhs for North esteem and hill states Is input Tax Credit allowed under Reverse Charge? Tax Paid on Reverse Charge basis will be available for input tax credit if such goods and /or service are used. Or will be used, for business. The recipient (i.e. who pays reverse tax) can avail input credit

20. Character tics Of Reverse Charge CA Sanjiv Nanda, Smarthead Consultants 3) How to determine Time of Supply Under Reverse Charge? Time of Supply in case of Goods In case of “Reverse Charge” the time of supply shall be the earliest of the following dates: The date of Receipt of goods OR The date of Payment* OR The date immediately after THIRTY days the date of issue of invoice by the supplier. If it’s not possible to determine the time of supply under (a), (b), or ©, the time of supply shall be the date of entry in the books of account of the Recipient.

21. Character tics Of Reverse Charge CA Sanjiv Nanda, Smarthead Consultants The date of payment Shall be earlier of: The date on which the recipient internet the payment in his books OR . The date on which the payment is debited from his bank account. Illustration:- Date of payment 15 th July 2018. Date of Invoice 15 th May 2018. Date of entry in books of receiver 18 th July 2018. The Time of supply of service in this case will be 15 th May 2018. If for some reason time of supply could not be determined supply under (1) or (2) then it would be 18 th July 2018 i.e , date of entry in books. Details to Be Mentioned in the Tax Invoice by The Supplier. The supplier must mention in his tax invoice if the tax is payble on reverse charge.

22. Other Relevant Point Regarding Levy Of Reverse Charge Mechanism (RCM) CA Sanjiv Nanda, Smarthead Consultants All persons procuring goods or service notified under Section 9(3) or Section 9(4) are mandatorily required to obtain GST Registration . “GST” levied under the Reverse Charge mechanism should be deposited with the Govt. by the 20 th of the next month. “GST” paid under the Reverse Charge Mechanism would be available for input Tax Credit if such goods and/or service are used in the furtherance of business. The service recipient (i.e. who pays reverse charge ) can avail input tax credit. The Details of “ GST” paid under Reverse Charge Mechanism (RCM) would not be auto- populated in the GSTR 2 and these details would be required to be manually furnished.

23. Other Relevant Point Regarding Levy Of Reverse Charge Mechanism (RCM) CA Sanjiv Nanda, Smarthead Consultants In case where RCM in levied, the recipient shall raise an Invoice on self. Invoice shall be issued on a dally basis for all consolidated purchases made during the day on which “GST” is levied under Reverse Charge . Section 31(3)(f)!] At the time of payment to the supplier, the recipient shall also issue a payment voucher for the made. Input Tax Credit whit the recipient cannot be used for payment of Reverse Charge of the Govt. A Registered person will not loose input Tax credit of “GST” paid Reverse Charge even if the payment is not made within 180 days. Reverse Charge is also applicable to recipients registered under the Composition Scheme. No Credit of RCM is available in such cases. RCM is levied on advance payment as well.

24. Reverse Charge Case Study CA Sanjiv Nanda, Smarthead Consultants Consider a supply of cashews by an agriculturist to a buyer. Cashews are listed by CEBC as goods that attract Reverse Charge. Now let us assume that: The supplier dispatch the goods on 1 st August. The buyer received the goods on August 5. The payment was made on 25 th July (Advance Payment) Invoice was raised by the supplier on 1 st August. Time of Supply under reverse charge would be 25 th July and must be included by the buyer in his July Returns, even though the goods are received in August. The buyer can input tax credit in the reverse charge. The Seller needs to mention the reverse Charge tax applied in the tax invoice. The aim of Reverse Charge is to bring unorganized sector into the tax umbrella. It also removes the burden of tax compliance from individuals with resources to large companies with enough resources.

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