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Reverse Charge Mechanism Applicability

The provisions relating to the levy of reverse charge mechanism with respect to goods or services or both received from an unregistered person by a registered person has always been complicated since its introduction. The basic provision of reverse charge mechanism with respect to goods or services or both received from an unregistered person by a registered person is contained under section 9 (4) of the Central Goods and Service Tax Act, 2017. Recently the Government has changed the reverse charge mechanism applicability vide notification no. 02/2019 – Central Tax dated 29th January 2019. In this article, we look at the applicability of GST reverse charge mechanism in the year 2019.

Previous Provisions Relevant Till 31^St January 2019

Section 9 (4) of the Central Goods and Service Tax Act, 2017 requires the central tax to be paid by the registered person, on a reverse charge basis, in as much as they have received taxable goods or service or both from an unregistered person.

That means, as per the basic provision, the tax would be payable by the registered person on reverse charge basis on every single rupee transaction of taxable goods or services or both received by the registered person from the unregistered person.

The above said provisions obviously have a very wide impact and would hinder the business of the unregistered person to a large extent. Seeing the complexity of the same, the Central Board of Indirect Taxes and Customs, vide notification no. 8/2017 – Central Tax (Rate) dated 28^th June 2017 exempted transactions up to an amount of aggregate value of INR 5,000 per day.

However by another notification no. 38/2017 – Central Tax (Rate) dated 13^th October 2017, entire central tax payable by the registered person, on a reverse charge basis, on receipt of taxable goods or services or both from the unregistered person was exempted till 31^st March 2018.

The said deadline of exemption till 31^st March 2018 was extended various times and vide last notification no. 22/2018 – Central Tax (Rate) dated 6^th August 2018 the exemption date was extended till 30^th September 2019.

Applicable Provisions Effective from 1^St February 2019

Recently, through notification no. 02/2019 – Central Tax dated 29^th January 2019, the Central Goods and Service Tax (Amendment) Act, 2018 was made effective from 1^st February 2019.

With the introduction of the Central Goods and Service Tax (Amendment) Act, 2018, the entire provisions of section 9 (4) was substituted. The provisions of the substituted section 9 (4) are being narrated hereunder –

• As per the new provisions, instead of coverage of all the registered person, now, the Government shall specify the class of the registered person who shall be liable to pay tax under reverse charge basis;
• As per the new provisions, instead of coverage of all the taxable supply of goods or services or both, the Government shall specify categories of goods or services or both on which reverse charge provisions are applicable when such goods or services or both is received from the unregistered person.

Conclusion of the New Provisions

With the introduction of the new provisions, the scope of section 9 (4) of the CGST Act, 2017 has been restricted. From now, only on the specified categories of a taxable supply of goods or services or both from the unregistered person by only the specified category of a registered person shall be liable to pay the tax on a reverse charge basis.

After the introduction of the new provisions of section 9(4) till now, the Government has neither specified the class of registered person to whom to provisions are applicable nor has provided the specified categories of a taxable supply of goods or services or both.