Ch 15 - Reverse Charge | GST Saral by CA Dhruv Aggarwal PDF Download

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CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 15 - Reverse charge 
 
 
 
 
 
CHAPTER 15 
 
Reverse charge 
 
EXECUTIVE SUMMARY 
 
?   Norma ly, tax is payable by supplier of goods or services or both. However, in some cases, the 
recipient is made liable to pay tax. This is termed as 'reverse charge'. 
?   When tax is payable under reverse charge basis, the exemption available to small taxable persons 
(20 or 10 lakhs) is not available. 
?   When tax is payable under reverse charge basis, it has to be paid by cash i.e. through electronic cash 
ledger only. 
?   Once tax is paid, its input tax credit is available if such supply of goods or services or both are 
otherwise eligible for input tax credit. 
?   A l recipients receiving supply from unregistered persons are liable to pay tax under reverse charge. 
15.1 Meaning of reverse charge 
 
Taxable person means a person who is registered or liable to be registered under section 22 or 24 of CGST 
Act - section 2(107) of CGST Act. 
Sections 22 and 24 of CGST Act requires every supplier of goods or services or both to register. 
 
Section 9(1) of CGST Act and section 5(1) of IGST Act provides that GST is payable by 'taxable person'. 
Thus, norma ly, GST is payable by 'taxable person' who is supplying goods and service. 
However, in some cases, GST is payable by person recipient of the goods or services or both. This is termed 
as 'reverse charge'. 
 
"Reverse charge'' means the liability to pay tax by the person receiving goods and/or services instead of the 
supplier of such goods and/or services under section 9(3) or 9(4) of CGST Act or section 5(3) or 5(4) of 
IGST Act - section 2(98) of CGST Act. 
15.1-1 Services and persons under reverse charge 
 
Section 9(3) of CGST Act reads as follows — 
 
The Central or a State Government  may, on the recommendation  of the Council,  by notification,  specify 
categories of supply of goods or services or both the tax on which is payable on reverse charge basis and the 
tax thereon shall be paid by the recipient of such goods or services or both and a l the provisions of this Act 
shall apply to such person as if he is the person liable for paying the tax in relation to the supply of such goods 
or services or both. 
Identical provision has been made in section 5(3) of IGST Act, in respect of IGST. 
 
15.2 General provisions applicable where reverse charge applies 
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CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 15 - Reverse charge 
 
 
 
 
 
CHAPTER 15 
 
Reverse charge 
 
EXECUTIVE SUMMARY 
 
?   Norma ly, tax is payable by supplier of goods or services or both. However, in some cases, the 
recipient is made liable to pay tax. This is termed as 'reverse charge'. 
?   When tax is payable under reverse charge basis, the exemption available to small taxable persons 
(20 or 10 lakhs) is not available. 
?   When tax is payable under reverse charge basis, it has to be paid by cash i.e. through electronic cash 
ledger only. 
?   Once tax is paid, its input tax credit is available if such supply of goods or services or both are 
otherwise eligible for input tax credit. 
?   A l recipients receiving supply from unregistered persons are liable to pay tax under reverse charge. 
15.1 Meaning of reverse charge 
 
Taxable person means a person who is registered or liable to be registered under section 22 or 24 of CGST 
Act - section 2(107) of CGST Act. 
Sections 22 and 24 of CGST Act requires every supplier of goods or services or both to register. 
 
Section 9(1) of CGST Act and section 5(1) of IGST Act provides that GST is payable by 'taxable person'. 
Thus, norma ly, GST is payable by 'taxable person' who is supplying goods and service. 
However, in some cases, GST is payable by person recipient of the goods or services or both. This is termed 
as 'reverse charge'. 
 
"Reverse charge'' means the liability to pay tax by the person receiving goods and/or services instead of the 
supplier of such goods and/or services under section 9(3) or 9(4) of CGST Act or section 5(3) or 5(4) of 
IGST Act - section 2(98) of CGST Act. 
15.1-1 Services and persons under reverse charge 
 
Section 9(3) of CGST Act reads as follows — 
 
The Central or a State Government  may, on the recommendation  of the Council,  by notification,  specify 
categories of supply of goods or services or both the tax on which is payable on reverse charge basis and the 
tax thereon shall be paid by the recipient of such goods or services or both and a l the provisions of this Act 
shall apply to such person as if he is the person liable for paying the tax in relation to the supply of such goods 
or services or both. 
Identical provision has been made in section 5(3) of IGST Act, in respect of IGST. 
 
15.2 General provisions applicable where reverse charge applies 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
Though person receiving the goods or services is liable to pay GST and IGST, he is not supplier of those 
goods and services. He is only discharging liability, which is of supplier of goods and services. 
Hence,  some specific  provisions  have been made, which are summarised  below.  These are discussed  at 
appropriate places. 
Aggregate turnover  - 'Aggregate turnover' does not include value of supplies in which tax is levied under 
reverse charge - section 2(6) of CGST Act. 
Output tax - "Output tax" excludes tax payable by him on reverse charge basis - section 2(82) of CGST Act 
and section 2(18) of IGST Act. 
Time of supply of goods - Section 12(3) of CGST Act makes separate provisions relating to supply of 
goods where tax is payable on reverse charge basis. 
Time of supply of service - Section 13(3) of CGST Act makes separate provisions relating to supply of 
services where tax is payable on reverse charge basis. 
Furnishing details of inward  supplies - Every person liable to pay service tax under reverse charge is 
required to furnish details of inward supplies - Section 38(2) of CGST Act. 
Liability to be registered  - Persons who are required to pay tax under reverse charge are required to be 
registered, irrespective of the threshold limit specified - section 24( i) of CGST Act. 
15.2-1 Tax under reverse charge to be paid through electronic cash register only 
 
When GST is payable under reverse charge, it should be paid by cash i.e. through Electronic Cash Ledger 
only. The GST under reverse charge cannot be paid by utilizing input tax credit i.e. it cannot be paid by utilizing 
Electronic Credit Ledger - see - section 49(4) of CGST Act read with section 2(82) of CGST Act. 
15.3 Reverse charge in case of purchases from unregistered supplier 
 
In case of purchases by a registered person from unregistered supplier, IGST will be payable by the recipient - 
section 9(4) of CGST Act and section 5(4) of IGST Act. 
This will increase compliance costs. 
 
15.4 Supply of Goods and services liable for reverse charge 
 
CGST Act does not indicate situations where reverse charge will apply. This may be specified through rules.