Reverse Charge Mechanism Under GST
We are going to discuss about the few point as mentioned below:-
1. Why Need of RCM under Indirect Tax Laws ?
2. Who Required to Pay tax Under RCM ?
3. Relevant Provision Regarding RCM ?
1. Why need of RCM Under GST
The basic question while applying the reverse charge under GST comes in mind why we need pay tax under reverse charge what is the fundamental principle underlying behind this.
In India there is several sectors working and and generating revenue however the Government of India out of these sectors come up with few sectors like GTA, Advocate, Rent a Cab etc. in which GST required to paid by the recipient of Goods & Services. The main motive of Government behind this is to transfer the GST liability payment from these sector to another sector who is receiving those goods & services.
Over the year of experience in assessments & audits by the department it was found that these sector are not complying with the provision of Laws prevailing at that time and not depositing the amount collected from the recipient and a list of those sectors made up and make necessary provision in the GST Law erstwhile Service Tax Law, to transfer their liability of payment of Tax in the hands of recipient. and these sectors are exempted from GST Law now they cannot collect any Tax from the recipient.
Furthermore some of the goods and services under reverse charge are those goods and services in which Government sought they can generate more revenue from the particular class of goods & service and they found the the supplier will never agreed pay Tax also they can not comply prevailing provision and it will be difficult for department to identify such services like. Director Services, Insurance Agent, Sponsorship Services etc. then they came with RCM for these type of Goods & services. Most of the Governmental Services are covered under RCM except those are exempted or which come under Normal Charge Mechanism.
2. Who Required to Pay tax Under RCM
The question arises who is required pay tax under reverse charge the answer is given below as of now CBIC has notified the below mentioned goods & services which are come under the ambit of reverse charge.
3. Relevant Provision Regarding RCM
Section 9(3) of the CGST Act, 2017. The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, 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.
Section 9(4) of the CGST Act, 2017 The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of 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 such supply of goods or services or both.
Issuance of invoice in case of reverse charge
In terms of sub-section (3) of Section 31(3)(f) of the CGST Act, 2017 A registered person who is liable to pay tax under sub-section (3) or sub-section (4) of Section 9 of the CGST Act, shall issue an 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; and as per clause (g) a registered person who is liable to pay tax under sub-section (3) or sub-section (4) of Section 9 shall issue a payment voucher at the time of making payment to the supplier.
The second proviso to Rule 46 provides that where an invoice is required to be issued under Section 31(3) (f) of the CGST Act, a registered person may issue a consolidated invoice at the end of a month for supplies covered under Section 9(4), the aggregate value of such supplies exceeds rupees five thousand in a day from any or all the supplies.
Month wise consolidated invoices cannot be issued in respect of goods and services received which are liable to reverse charge under sub-section (3) of Section 9 of CGST Act, 2017.
Time of Supply-
Sub-section (3) of Section 12 of CGST Act, 2017 provided In case of supply of Goods in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates
a) the date of the receipt of goods; or
b) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
c) the date immediately following thirty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:
Provided that where it is not possible to determine the time of supply under clause (a) or clause (b) or clause (c), the time of supply shall be the date of entry in the books of account of the recipient of supply.
Sub-section (3) of Section 13 of CGST Act, 2017 provided In case of supply of services in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates, namely:-
a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
b) the date immediately following sixty days from the date of issue of invoice or
c) any other document, by whatever name called, in lieu thereof by the supplier:
Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply
Time limit for issuing tax invoice-
The invoice referred to in rule 46, in the case of the taxable supply of services, shall be issued within a period of thirty days from the date of the supply of service:
Provided that where the supplier of services is an insurer or a banking company or a financial institution, including a non-banking financial company, the period within which the invoice or any document in lieu thereof is to be issued shall be forty-five days from the date of the supply of service:
Provided further that an insurer or a banking company or a financial institution, including a non-banking financial company, or a telecom operator, or any other class of supplier of services as may be notified by the Government on the recommendations of the Council, making taxable supplies of services between distinct persons as specified in section 25, may issue the invoice before or at the time such supplier records the same in his books of account or before the expiry of the quarter during which the supply was made.
Penalty for fails to issue invoice
Sub-section (3) of Section 122 of CGST Act, 2017, Provides Any person who––
e) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account,
shall be liable to a penalty which may extend to twenty-five thousand rupees.
Analysis Input tax credit in respect of Reverse Charge Mechanism-
Eligibility of taking input tax credit
Section 16(4) provides the time limit for taking input tax credit A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
Documentary requirements and conditions for claiming input tax credit Rule 36
(1) The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely, -
(a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31
(b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax;
(c) a debit note issued by a supplier in accordance with the provisions of section 34;
(d) a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports;
(e) an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54.
(2) Input tax credit shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the said document, and the relevant information, as contained in the said document, is furnished in FORM GSTR-2 by such person.
(3) No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.
Hence we are eligible to take input tax credit of reverse charge paid on goods and services subject to fulfillment of above mentioned provisions.
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