GST Reverse charge liability u/s 9(3) and 9(4) of CGST Act, 2017

[Ganeshan Kalyani]

Normally, GST is payable by a taxable person supplying goods or services or both. However, in some cases, GST is payable by the person receiving the goods or services or both. This is termed as reverse charge mechanism. The term ‘reverse charge’ as defined in the Act is reproduced below:

‘’reverse charge’’ means the liability to pay tax by the recipient of goods or services or both instead of the supplier of 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;’’

There are two provisions under which GST is payable under reverse charge:

A)  The first one is payable under section 9(3) of CGST Act, 2017. A list of goods and services on which the tax is payable under the said section is notified thru notification.

B)  The second provision to pay tax is provided under section 9(4) of CGST Act, 2017 where the registered recipient is liable to pay tax on all purchase of goods or services or both from an unregistered person under GST.

A) GST liability u/s 9(3) of CGST Act, 2017

A list of goods on which GST is payable u/s 9(3) of the Act is given in the Notification no. 4/2017-CTR dated 28.06.2017. And the category of services on which tax is payable u/s 9(3) is enumerated in the Notification no. 13/2017-CTR dated 28.06.2017.

The goods specified in the notification no. 4/2017 are cashew nuts, not shelled or peeled, bidi wrapper leaves (tendu), tobacco leaves, silk yarn, raw cotton, used vehicles, seized and confiscated goods, old and used goods, waste and scrap, priority sector lending certificate. The recipient of these goods are liable to pay GST under reverse charge.

In case of supply of lottery by Central Government, Union Territory or any local authority, being a supplier of goods the tax shall be paid by the lottery distributor or selling agent, being the recipient of supply of said goods.

The category of services enumerated in the notification no. 13/2017 are discussed below in detail:

Goods Transport Agency (GTA):

A Goods Transport Agency (GTA) means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. The tax on GTA service is payable by the recipient being any factory registered under or governed by the Factories Act, 1948; or any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India; or any co-operative society established by or under any law; or any person registered under the CGST Act or IGST Act or the SGST Act or the UTGST Act; or any body corporate established, by or under any law; or any partnership firm whether registered or not under any law including association of person; or any casual taxable person, located in the taxable territory.

A service provided by a GTA by way of transport in a goods carriage of agricultural produce;  goods where consideration charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees; goods where  consideration charged for transportation of all such goods for a single consignment does not exceeds rupees seven hundred and fifty; milk, salt and food grain including flour, pulses and rice; organic manure; newspaper or magazines registered with the Registrar of Newspaper; relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or defence or military equipments are exempted from GST.

A service provided by a GTA to an unregistered person, including an unregistered casual taxable person, other than the recipients mentioned in the above para; is exempted from GST. The above said exemption is given in the Notification no. 12/2017-CTR dated 28.06.2017.

Legal consultancy service:

A legal consultancy service means any service supplied in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority. Any business entity located in the taxable territory receiving legal service from an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly shall pay tax under reverse charge basis.

A service provided by a partnership firm of advocate or an individual as an advocate other than a senior advocate, by way of legal service to an advocate or partnership firm of advocates providing legal services; or to any person other than a business entity; or to a business entity with an aggregate turnover up to twenty lakh rupees (ten lakh rupees in the case of a special category states) in the preceding financial year; or to the Central Government, State Government, Union Territory, local authority, Government Authority or Government Entity is exempted from GST.

However, the service provided by a senior advocate by way of legal service to an advocate or partnership firm of advocates providing legal services is taxable.

An Arbitral Tribunal Service:

Any business entity located in the taxable territory being recipient of the services supplied by an arbitral tribunal shall pay tax under reverse charge basis.

Sponsorship Service:

Any body corporate or partnership firm located in the taxable territory shall pay tax on receipt of sponsorship service from any person on reverse charge basis.

Service supplied by the Central Government, State Government, Union territory or local authority (excluding renting of immovable property):

A business entity located in the taxable territory shall pay tax on receiving service from the Central Government, State Government, Union territory or local authority excluding renting of immovable property, services supplied 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; services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; and transport of goods or passengers.

A person registered under the CGST Act, 2017 shall pay tax on the services of renting of immovable property received from the Central Government, State Government, Union territory or local authority, services

Service supplied by a Director of a company or a body corporate:

The company or a body corporate located in the taxable territory shall pay GST under reverse charge on receiving service from a director of a company or a body corporate.

Service supplied by an insurance agent:

Any person carrying on insurance business, located in the taxable territory shall pay GST under reverse charge on the services supplied by an insurance agent.

Service supplied by a recovery agent:

A banking company or a financial institution or a non-banking financial company located in a taxable territory shall pay GST under reverse charge on receiving services from a recovery agent.

Service by way of transfer or permitting the use or enjoyment of a copyright:

A publisher, music company, producer or the like located in the taxable territory shall pay GST under reverse charge on receiving service from an author, music composer, photographer, artists or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original literary, dramatic, musical or artistic works.

Service received by Reserve Bank of India:

Reserve Bank of India shall pay GST under reverse charge on receiving services from the members of Overseeing Committee constituted by RBI.

Services supplied by an individual Direct Selling Agent (DSA)

A banking company or a non-banking financial company located in the taxable territory shall pay tax under reverse charge on receiving service from an individual direct selling agent other than a body corporate, partnership or limited liability partnership firm.

B) GST liability u/s 9(4) of CGST Act, 2017

The second method of payment of GST under reverse charge is provided u/s 9(4) of CGST Act. As per the said provision a registered person shall pay tax on receiving goods or services or both from a person who is not registered under GST.

Further, vide Notification no. 8/2017-CTR dated 28.06.2017 the tax payment as required u/s 9(4) was exempted if the aggregate value of the supplies of goods or services or both received by a registered person from any or all the suppliers, who is or are not registered does not exceeds ₹ 5000/-.

Thereafter, the provision of section 9(4) of CGST Act, was suspended till 31.03.2018 vide Notification no. 38/2017-CTR dated 13.10.2017. It was again suspended till 30.06.2018 vide notification no. 10/2018-CTR dated 23.03.2018. The Government of India has further suspended the said provision till 30.09.2018 vide Notification no. 12/2018-CTR dated 29.06.2018. In view of these change it is understood that the registered person is exempted from payment of GST on the purchase of goods or services or both from an unregistered person under GST till the completion of exemption period.

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