Reverse Charge Mechanism (RCM) under GST on purchases from Unregistered Person: Journey so far

One of the questions often raised is whether the purchase from Unregistered Dealer or person is liable for GST under Reverse Charge Mechanism (RCM). The question is more important for jewellers, person doing business in scrap and like as they purchases goods from unregistered person as well.

Let us know about it.

As per Section 9(4) of CGST Act, 2017 and Section 5(4) of IGST Act, 2017 any Supply of goods or service from an Unregistered supplier to a Registered supplier will cast liability to Pay GST to the Government in the form of RCM i.e. Reverse charge mechanism.

As per provisions of Sec 31(3) of CGST Act, 2017, any person being a recipient of Service under GST is require to issue taxable self-invoice i.e., invoice to self commonly referred to as the Self invoice.

Availability of Invoice is the primary condition for claiming ITC against any supply. So, self invoicing is must so as to avail Input tax credit against Tax paid to Government Treasury.

It is also aimed to promote the organised business through GST registered person as registered dealer would prefer to purchase goods or services from registered Dealers instead of Un-registered dealers to avoid unnecessary difficulties as well. It is anticipated that the provision like RCM would discourage the business transactions from unregistered dealers and they would be forced to get themselves registered under GST voluntarily even though they are not compulsorily required to get themselves registered.

However, there were lot of hue and cry over this provision during implementation phase itself and so the GST council decide to exempt supplies up to Rs. 5000/- per day from any unregistered dealer vide Notification No. 08/2017- Central Tax (Rate) dated 28.06.2017.

The copy of the notification is as under:

[TO BE PUBLISHED IN PART II, SECTION 3, SUB-SECTION (i) OF THE GAZETTE OF INDIA, EXTRAORDINARY]

GOVERNMENT OF INDIA MINISTRY OF FINANCE

(Department of Revenue)

Notification No.8/2017-Central Tax (Rate) New Delhi, the 28th June, 2017 G.S.R. (E)

In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017): Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day. 2. This notification shall come into force with effect from the 1st day of July, 2017. [F.No.354/117/2017-TRU

Now, Person purchasing above Rs. 5000 per day from any unregistered person is not required to do RCM.

In addition to this, Government has amended Notification No. 08/2017- Central Tax (Rate) dated 28.06.2017 vide Notification No. 38/2017- Central Tax (Rate) dated 13.10.2017 whereby any registered person procuring taxable goods/services from unregistered suppliers, shall not be required to pay GST under reverse charge mechanism u/s 9(4) of CGST Act, 2017 and u/s 5(4) of IGST Act, 2017 w.e.f. 13.10.2017 till 31.03.2018.

The copy of the said notification is as under;

Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs

Notification No. 38/2017–Central Tax (Rate)

New Delhi, the 13th October, 2017

G.S.R. 1262(E).– In exercise of the powers conferred by sub-section (1) of section 11 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on being satisfied that it is necessary in the public interest so to do, on the recommendations of the Council, hereby makes the following amendment in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No.8/2017- Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 680(E), dated the 28th June, 2017, namely:-

In the said notification, the proviso under Paragraph 1 shall be omitted.

2. The exemption contained in the notification No. 8/2017-Central Tax (Rate) dated the 28th June, 2017as amended by this notification shall apply to all registered persons till the 31st day of March, 2018.

[F. No.349/74/2017-GST (Pt.)]

(Ruchi Bisht)
Under Secretary to the Government of India

Note: – The principal notification No.8/2017-Central Tax (Rate), dated the 28th June, 2017 was published in the Gazette of India, Extraordinary, Part II, Section 3, Subsection (i) vide number G.S.R. 680 (E), dated the 28th June, 2017.

It may be noted that this notification does not affect the provision of Section 9(3) of CGST Act, 2017. In short, for the period starting from 01.07.2017 to 12.10.2017 if the registered person has procured goods or services or both from any unregistered persons exceeding value of Rs. 5000 in a day then such persons have to discharge his liability under reverse charge mechanism as stated under section 9(4) of the CGST Act, 2017 and section 5(4) of the IGST Act, 2017 and also has to follow the other relevant provisions of the GST Law (e.g. Section 31 of CGST Act, 2017).

Now, after this Notification No. 12/2018- Central Tax (Rate) dated 29.06.2018 is issued which further relaxed the earlier notification till 30.09.2018.

Moving further, CGST (Amendment) Act, 2018 dated 29.08.2018 has made further amendment in the provisions effective from 01.02.2019 to replaced section 9(4) with new one which says that

 “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.”.

 

It is worth mentioning here that there is no such notification issued so far & so any registered person will not be liable to pay tax as per section 9(4) of the CGST (Amendment) Act, 2018.

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