Section 2(98) of the CGST Act, 2017 has defined the term “Reverse Charge” and the same is reproduced as follows: Report this ad “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 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.

When is a reverse charge applicable?

Section 9(3), 9(4) and 9(5) of Central GST and State GST Acts govern the reverse charge scenarios for intrastate transactions.

Sections 5(3), 5(4) and 5(5) of the Integrated GST Act govern the reverse charge scenarios for inter-state transactions.

A. Supply of certain goods and services specified by the CBIC

As per the powers conferred in section 9(3) of CGST Acts, CBIC has issued a list of goods and services on which reverse charge is applicable.

B. Supply from an unregistered dealer to a registered dealer

Section 9(4) of the CGST Act states that if a vendor is not registered under GST supplies goods to a person registered under GST, then reverse charge would apply. This means that the GST will have to be paid directly by the receiver instead of the supplier. The registered buyer who has to pay GST under reverse charge has to do self-invoicing for the purchases made.

In intra-state purchases, CGST and SGST have to be paid under reverse charge mechanism (RCM) by the purchaser. Also, in the case of inter-state purchases, the buyer has to pay the IGST. The government notifies the list of goods or services on which this provision gets attracted from time to time.

The RCM in case of supplies made by unregistered persons to registered persons deferred to 30th September 2019. Previously, this provision was applicable from 1st October 2018.

C. Supply of services through an e-commerce operator

Section 9(5) of the CGST Act states that if a service provider uses an e-commerce operator to provide specified services, the reverse charge will apply to the e-commerce operator and he will be liable to pay GST. This section covers the services such as:

• Transportation services to passengers by a radio-taxi, motor cab, maxi cab and motorcycle.
• Providing accommodation services in hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes, except where the person supplying such service through electronic commerce operator is liable for registration due to turnover exceeding the threshold limit.
• Housekeeping services, such as plumbing and carpentering, except where the person supplying such services through electronic commerce operators are liable for registration due to turnover beyond the threshold limit. For example, UrbanClap provides the services of plumbers, electricians, teachers, beauticians etc. In this case, UrbanClap is liable to pay GST and collect it from the customers instead of the registered service providers. 

GST registration under RCM

As per Section 24 of the CGST Act, 2017, a person who is required to pay tax under reverse charge has to compulsorily register under GST irrespective of the threshold limit of registration and threshold limit of ` 20 lakhs/` 40 lakhs (` 10 lakhs for special category States ) but special category States threshold exemption is increased to ` 20 lakhs, as per CGST (Amendment) Act, 2018 is not applicable to the Reverse Charge Mechanism.

Input Tax Credit Of GST Paid In RCM

Any amount paid as reverse charge is allowed as input tax credit subject to condition that credit is allowed in normal circumstances to such business. For example composition dealers are not allowed to take input tax credit in normal circumstances and therefore they are also not allowed to take input tax credit on GST paid on reverse charge.

Also the amount of GST under Reverse charge is to be paid in cash only and can not be paid from ITC available. The net result is that minimum amount of GST payable in a tax period is the amount of reverse charge in that period.

Time of supply under RCM

A. Time of supply in case of goods

In case of reverse charge, the time of supply for goods shall be the earliest of the following dates:

• the date of receipt of goods
• the date of payment
• the date immediately after 30 days from the date of issue of an invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

B. Time of supply in case of services

In case of reverse charge, the time of supply shall be the earliest of the following dates:

• The date of payment
• The date immediately after 60 days from the date of issue of invoice by the supplier

If it is not possible to determine the time of supply, the time of supply shall be the date of entry in the books of account of the recipient.

Invoicing Under RCM

A registered person liable to pay tax under reverse charge (both for supplies on which the tax is payable under reverse charge mechanism and supplies received from unregistered persons) has to issue an invoice in respect of goods or service or both received by him. Such a registered person in respect of such supplies also has to issue a payment voucher at the time of making payment to the supplier.

There is no specific format for such self invoicing. The same format which the person is using for invoicing can be used only heading is to be changed.

List of services notified by CBEC

CBEC has notified a list of services on which reverse charge mechanism will be applicable under GST

Provider	Recipient
Goods transport agency	Casual Taxable person, body corporate, partnership firm, any society, factory, any person registered under CGST, SGST, IGST Act
Recovery Agent	Banking Company, NBFC or any financial institution
A director of a company or a body corporate	A company or a body corporate
An individual advocate or firm of advocates, An arbitral tribunal	Any business entity
An insurance agent	Any person carrying on insurance business

Supply of Goods Under RCM

S.No	Description of Supply of goods	Supplier of Goods	Recipient of Goods
1.	Cashew nuts, not shelled or peeled	Agriculturist	Any registered person
2.	Silk yarn	Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn	Any registered person
3.	Raw cotton	Agriculturist	Any registered person
4.	Used vehicles, seized and confiscated goods, old and used goods, waste and scrap	Central Government, State Government, Union territory or a local authority	Any registered person

Supply of Services Under RCM

S. No	Description of Supply of Service	Supplier of Goods	Recipient of Service
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 a non-taxable territory	Any person located in the taxable territory other than non-taxable online recipient.
2.	GTA Services	Goods Transport Agency (GTA) who has not paid integrated tax at the rate of 12%	Any factory, society, cooperative society, registered person, body corporate, partnership firm, casual taxable person; located in the taxable territory
3.	Legal Services by advocate	An individual advocate including a senior advocate or firm of advocates	Any business entity located in the taxable territory
4.	Services supplied by an arbitral tribunal to a business entity	An arbitral tribunal	Any business entity located in the taxable territory
5.	Services provided by way of sponsorship to any body corporate or partnership firm	Any person	Any body corporate or partnership firm located in the taxable territory
6.	Services supplied by the Central Government, State Government, Union territory or local authority to a business entity excluding, – (1) renting of immovable property, and (2) services specified below- (i) services by the Department of Posts by way of speed post, express parcel post, life insurance, and agency services provided to a person other than Central Government, State Government or Union territory or local authority; (ii) services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; (iii) transport of goods or passengers.	Central Government, State Government, Union territory or local authority	Any business entity located in the taxable territory
7.	Services supplied 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	The company or a body corporate located in the taxable territory
8.	Services supplied by an insurance agent to any person carrying on insurance business	An insurance agent	Any person carrying on insurance business, located in the taxable territory
9.	Services supplied by a recovery agent to a banking company or a financial institution or a non-banking financial company	A recovery agent	A banking company or a financial institution or a nonbanking financial company, located in the taxable territory
10.	Services supplied by a person located in nontaxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India	A person located in non-taxable territory	Importer, as defined in clause (26) of section 2 of the Customs Act, 1962(52 of 1962), located in the taxable territory
11.	Supply of services by an author, music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under section 13(1)(a) of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works to a publisher, music company, producer or the like	Author or music composer, photograph her, artist, or the like	Publisher, music company, producer or the like, located in the taxable territory
12.	Supply of services by the members of Overseeing Committee to Reserve Bank of India	Members of Overseeing Committee constituted by the Reserve Bank of India	Reserve Bank of India.