How to Meet Your Obligation | Complete GST Compliance Guide

Goods and Services Tax (GST) compliance involves understanding several complex provisions, one of the most important being the Reverse Charge Mechanism (RCM). Correct application of reverse charge, input tax credit, registration requirements, and statutory notifications is essential for businesses to remain compliant and avoid disputes. GST – How to Meet Your Obligation serves as a comprehensive practical guide, explaining GST provisions through simplified commentary, legal interpretations, notifications, and judicial precedents. It equips tax professionals, businesses, and practitioners with the knowledge needed to confidently manage GST obligations and navigate evolving compliance requirements.

Table of content

1. Rationale behind reverse charge
2. Statutory provisions
3.  Reverse charge on supply of goods also
4. No partial payment of tax by supplier
5.  Tax cannot be collected from two persons
6.  Utilization of credit
7.  Revenue neutral
8.  Supply by unregistered person to registered person up to 31-01-2019
9.  Reverse Charge in case of supplies from Unregistered person from 31-01-2019
10. No registration if tax is payable on reverse charge
11.  Supply of services attracting reverse charge
12. Tax payable by Electronic Commerce Operators

 Background

The Service Tax was imposed on few categories of services in 1994. The Service Tax on services provided by goods transport agency was imposed in 1997. As per the notification, the recipient of service was made liable to pay the tax. At the relevant time, section 68(2) of Chapter V of the Finance Act, 1994 did not provide for recovery of tax from the recipient of service. Therefore, the recovery of tax from recipient of service was challenged.

After the judgment of Supreme Court in the case of Laghu Udyog Bharati v. Union of India reported in [2006] 4 STT 322, Section 68 was amended by incorporating sub-section (2) which empowers the Government to specify the services and the person liable to pay tax by notification. After the issuance of notification, the tax is payable by the person specified in the notification, which can be either the recipient of service or both provider of service as well as recipient of service. The Government has issued notification from time to time for recovery of tax from the recipient of service.

The notification 17/2017-CT(Rate) specifies categories of services supplied through Electronic Commerce Operators. The GST is payable by Electronic Commerce Operators for such supplies. The scope of these supplies are not discussed in this Chapter.

1. Rationale behind reverse charge

The following three factors are the basis for providing of payment of tax under reverse charge:

(a) Large number of assessees with small payment of tax from each assessee – Sometimes the number of Assessees (who is supplier of Goods or Services or both) are very large and the recipient of Goods or services or both are few. The Govt. feels that each of large number of assessee will pay small amount of tax and recovery of tax from the service recipient will be much simpler and will save public at large from burden of complying with law. For example, Insurance Agents. There may be over one crore insurance agents employed by 25 to 30 Companies engaged in providing life insurance services. The commission received by each of the agent may not exceed ` 10 Lacs. Therefore, the Government may not get any substantial revenue if the service provider is made liable to pay the tax. The Government has specified under Rule 2(1)(d) of the Service Tax Rules, 1994 that Insurance Company as a person is liable to pay tax when services are rendered by Insurance Agents. The Government can collect the same amount of tax or more amount of tax for the services rendered by the Insurance Agent from its 25 to 30 Insurance Companies. Thus the administrative problems in collecting the tax is heavily reduced.

(b) Jurisdiction – In case of import of service, the service provider is located outside India. The taxable territory for levy of GST is India. The Government has no jurisdiction to demand tax from the person located outside India. Accordingly, the recipient of service is made liable to pay the tax as he is located in India. The Government can recover tax from recipient.

(c) Difficulty in Collection of Tax – In many cases the Government finds it very difficult to recover tax from some class of assessees like individuals, partnership, HUF, etc. In some trades like providing security service, manpower supply, the recovery of tax is a big headache of Government. Therefore, it provides for payment of tax by the recipient who are corporate bodies.

2. Statutory Provisions

The section 9(3) of GST Act excluding IGST Act and section 5(3) of IGST Act empowers the Central or State Government by issuing notification to specify categories of supply of goods or services or both, the tax on which shall be payable on reverse charge basis. The section 9(3) of GST Act excluding IGST Act and section 5(3) of IGST Act reads as follows:

‘9(3) 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.’

Under IGST Act

‘5(3) 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.’

The Section 9(4) of GST Act excluding IGST Act and section 5(4) of IGST Act specify that recipient is liable to pay GST on goods or services received by him from unregistered persons. These are discussed in paras 12.10, 12.11 & 12.12.

Section 2(98) defines ‘reverse charge’ as follows:
‘(98) “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;’

2.1 Essential Ingredients of reverse charge

The essential ingredients are as follows:

(a) It shall be recommended by GST Council formed under the Constitution of India. The Section 2(36) defines ‘council’ as follows:

‘(36) “Council” means the Goods and Services Tax Council established under Article 279A of the Constitution;’

The categories of supply of goods or service on which tax is payable by reverse charge shall be recommended by GST council. Therefore, it is expected that it will be uniform in all the States.

(b) The Central or State Government shall issue notification specifying the categories of supply of goods or services or both and the person liable to pay the tax. The issuance of notification is a mandatory condition. Section 68(2) of Chapter V of the Finance Act, 1994 empowers the Government to specify the services and the person liable to pay tax. The Government specified the person liable to pay tax under Rule 2(1)(d) of the Service Tax Rules, 1994 w.e.f. 16-8-2002 in case of import of service i.e. where service provider is located outside India. However, the Government did not issue the notification specifying the nature of service and the person liable to pay tax till 1-1-2007. The Larger Bench of Tribunal in the case of Hindustan Zinc Ltd. v. CCE 2008 taxmann.com 1220 (New Delhi – Cestat) has held that the tax is not payable by the recipient of service till 1-1-2005 as the Government did not issue the notification. The issuance of notification is mandatory condition. The said judgment is finally being upheld by the Hon’ble Supreme Court as reported in 2009 (14) S.T.R.J. 125. In view of this, it is essential to issue the notification under Rule 8(3) specifying the nature of supply on which tax is payable under reverse charge.

(c) The recipient of service or goods will be considered as a person liable to pay GST. As per section 9(3) & (4) of GST Act excluding IGST Act and section 5(3) & (4) of IGST Act, the provisions of the Act, shall apply to such person as if he is responsible for making the payment. The specified person thus will step into the shoes of the person making the supply. He will have to obtain registration, make payment of tax, file return and comply with all other formalities as if he is the person making the supply. The officer from the department will also regularly audit the records maintained by him.

3. Reverse Charge on supply of goods also

The section 9(3) of GST Act excluding IGST Act and section 5(3) of IGST Act empowers the Central or State Government to specify the categories of supply of goods or services or both, the tax on which is payable on reverse charge basis. The section 68(2) of Chapter V of the Finance Act, 1994 only empowered the Government to specify the services and the person liable to pay tax for such services by issuing notification. There is no provision in the Central Excise Act, 1944 which levies excise duty on manufacture of goods which empowered the Government to recover the tax from the purchaser of the goods, except in case of purchase of goods for use in the manufacture of export products. Thus, recovery of tax on supply of goods from the recipient is a new concept.

The government vide Notification No. 4/2017-Central Tax (Rate) dated 28-6-2017 has specified categories of goods on which tax will be payable by recipient of supply.

4. No partial payment of tax by the supplier

Section 68(2) of Chapter V of the Finance Act, 1994 till 1-7-2012 did not empower the Central Government to recover service tax partially from the recipient of service and partially from the provider of service. The Finance Act, 2012 added the following proviso to empower the Central Government to recover the tax partially from service provider and partially from service recipient:

“Provided that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider.”

Thereafter the Central Government has issued Notification No. 30/2012-ST which specifies the percentage of tax recoverable from the service provider and the service recipient.

4.1 No power for recovery from both

The provisions of Section 9(3) & (4) of GST Act excluding IGST Act and section 5(3) & (4) of IGST Act have been reproduced above. It will be observed that the Government does not have power to specify the recovery of tax both from supplier as well as recipient. The tax can be recovered only from the recipient of goods or services.

5. Tax cannot be collected from two persons

Provisions regarding payment of tax by recipient of service is also contained in Chapter V of Finance Act, 1994. The notification No. 30/2012-ST read with rule 2(1)(d) of Service Tax Rules, 1994 specified various categories of service on which tax is payable by the recipient of service. In some case, dispute has arisen regarding the nature of service and the fact whether tax is payable on reverse charge or not.

One of the service specified in Notification No. 30/2012-ST is supply of manpower which has been defined in rule 2(g) of Service Tax Rules, 1994 as follows:

“supply of manpower temporarily or otherwise to another person to work under his superintendence or control”

It is observed from the rule that where supervision and control is exercised by recipient of service on the manpower, the service is considered as supply of manpower. In case supervision and control is exercised by the manpower supplier, it will be considered as supply of service of job work and not supply of manpower.

Similarly, in case of GTA in many cases, GTA has paid the service tax on the services provided by them. The department has demanded the tax from the recipient of service as notification specified recipient of service as person liable to pay tax. The Tribunal has consistently held in following judgments that once tax has been paid either by provider of service or recipient of service, service tax cannot be demanded again from other person. The government shall receive the tax only from one person on the transaction. If the government is already received the tax either from the provider or recipient it cannot ask other person to pay the tax again:

(a) General Manager, J K Sugar Ltd. 2016 (43) STR 292 (Tri.-All)
(b) Navyug Alloys Pvt. Ltd. – 2009 (13) S.T.R. 421 (Tri.-Ahd.)
(c) Mandev Tubes – 2009 (16) S.T.R. 724 (Tri.-Ahd.)
(d) Geeta Industries Pvt. Ltd. – 2011 (22) S.T.R. 293 (Tri.-Delhi).

6. Utilization of credit

Prior to July 2012, there was lot of dispute whether recipient of service can pay tax under reverse charge by utilizing credit balance available with them. In July 2012, specific proviso was added under rule 3(4) of Cenvat Credit Rules, which reads as follows:

“Explanation.—CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.”

Thus after July 2012, it is mandatory on the part of recipient to pay tax by cash. He cannot utilize credit balance available with him.

Similar provisions has been made in GST Act. Section 49(4) of the GST Act provides that amount available in electronic credit ledger may be used for making payment towards output tax payable under the provisions of the Act or the rules made thereunder. The ‘output tax’ has been defined in section 2(82) of the GST Act excluding IGST and 2(18) of the IGST Act as follows:

‘(82) “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis;
It is evident from the above, it does not include tax payable by him on reverse charge basis.’

Under IGST Act

‘(18) “output tax” in relation to a taxable person, means the integrated tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis;’

Accordingly, credit balance cannot be utilized for payment of tax under reverse charge for the supplies specified in section 9(3) & (4) of the GST Act excluding IGST Act and section 5(3) & (4) of IGST Act.

7. Revenue neutral

Very often after making payment of tax on reverse charge basis, the taxable person is entitled to the credit of the same tax. Therefore, the entire situation is revenue neutral. The Government does not stand to gain any tax amount when the entire credit is available to the taxable person.

Similar was the situation in respect of provisions contained in Chapter V of Finance Act, 1994. The Tribunal has in the cases of Reliance Industries Ltd., 2016 (44) STR 82 (Tri.-Mumbai) and Jet Airways (I) Ltd. 2016 (44) STR 465 (Tri.-Mumbai) has held that when the situation is revenue neutral tax is not payable. Therefore, the demand is set aside. The relevant extract of the above two judgments are given below.

(a) The Mumbai Tribunal in para 12 in case of Reliance Industries Ltd. 2016 (44) STR 82 (Tri.-Mumbai) has observed as follows:

‘12. We also note that the entire dispute being revenue neutral, there could have been no intention to evade payment of duty and consequently the extended period of limitation was per se not invocable. It is settled law laid down in the following amongst other judgments a series of judgment including that of the Apex Court that in a case where credit is available to an assessee itself it cannot be said that there is any intention to evade payment of duty, which is a prerequisite for invoking the extending period of limitation. In the instant case also if any tax was payable it could have been available immediately to the Appellant, thereby rendering the entire dispute being revenue neutral. This being the case the invocation of extended period of limitation is clearly not justified :—

(a) Reliance Industries Ltd. v. CCE – 2009 (244) E.L.T. 254 (Tri.)
(b) CCE v. Indeos ABS Ltd. – 2010 (254) E.L.T. 628 (Guj.)
(c) Mafatlal Industries Ltd. v. CCE – 2009 (241) E.L.T. 153 (Tri.); affirmed by the Apex Court by dismissing the Civil Appeal reported in 2010 (255) E.L.T. A77 (S.C.)
(d) Nirlon Ltd. v. CCE – 2015 (320) E.L.T. 22 (S.C.)’

(b) The Mumbai Tribunal in para 10.7 in case of Jet Airways (I) Ltd. 2016 (44) STR 465 (Tri. Mumbai) has observed as follows:

‘10.7 In our considered view, we have to read the order holistically, i.e., British Airways case; on merits is against the appellant in this case while on the issue of revenue neutrality the order of British Airways supports appellant’s case. The ratio of the Bench applies clearly to the case in hand accordingly respectfully following to ratio, we have to hold that the appellant has made out a case in their favour on the question of revenue neutrality. In view of a direct decision on the self same issue, we are not recording any findings on other case laws relied upon by both sides on the question of revenue neutrality.’

Also Refer Chapter 1 for discussion on the same.

8. Supply by unregistered person to registered person [up to 31-1-2019]

In addition to Section 9(3) of GST Act excluding IGST Act and section 5(3) of IGST Act, section 9(4) of GST Act excluding IGST Act and section 5(4) of IGST Act provides that supply of taxable goods or services or both by supplier who is not registered to a registered person shall be paid by such person on reverse charge basis. Say person X is registered under GST. He purchase the goods from A who is not registered. In such case, as per section 9(4) of GST excluding IGST Act and section 5(4) of IGST Act, GST will be payable by recipient of supply i.e. X. Mr. X is required to declare the receipt of goods or services in form GSTR-2. This will ensure that goods or services purchased from unregistered person is also subject to tax.

The definition of input tax inter alia includes tax payable by recipient under section 9(4) of GST excluding IGST Act and section 5(4) of IGST Act. Therefore, credit of such tax will be available to the recipient provided which is used in the course or furtherance of business.

8.1 From an unregistered person for value up to ` 5000 in a day

As per section 9(4) of CGST Act, GST to be discharged on Reverse charge basis on purchase of goods/services from unregistered persons. In a relief to the assessee, the government has exempted the following supplies from GST under reverse charge vide Notification No. 8/2017-Central tax (rate).

(a) Exemption is available only for intra-state supplies. Thus location of supplier and place of supply should be in the same state.
(b) The exemption is eligible only when the total value of supplies of goods or services or both received from any or all the unregistered persons does not exceed ` 5,000 in a day. If the value exceeds ` 5,000 per day then the GST will be payable on the entire value. e.g. if a person buys goods worth ` 2,000 and ` 3,500 from two unregistered supplier in a day, then GST will be paid on the entire value of ` 5500 under RCM by the buyer.
(c) Notification rescinded – Notification No. 8/2017-CT (Rate) has been rescinded by Notification No. 1/2019-CT (Rate) which is effective from 1-2-2019. Therefore, discussion made in the following sub-paras are relevant up to 31-1-2019 only.

8.2 Difficult to monitor

It is possible to monitor the daily expenses in a small firms to compute value of receipts of Goods or Services of ` 5000 in a day. However, it is very difficult to monitor sum in a large organization particularly when there are multiple place of business in a State. For example, say a bank has 200 branches in a State, the exemption is available when the supply from an unregistered person in respect of all 200 branches in a day has not exceeded ` 5,000. Normally, the accounting records are maintained branch-wise, the computation of expenses of supply of goods/services per day can be made at the branch level but it is very difficult to compute for all 200 branches in a day. Therefore, this notification will not be much useful for large organization.

8.3 Exporter buying from unregistered person

Section 9(4) of CGST Act and similar provisions in other Acts provides no exemption from payment of tax under reverse charge to exporters. Therefore, exporter will be liable to pay GST on receipt of goods or services from unregistered person. He cannot claim that the goods procured by him from unregistered person is ultimately meant for export and therefore no GST is payable. The liability to pay GST on goods/services procured from unregistered person by a registered person under section 9(4) is independent of refund of IGST on export of goods provided under section 16 of IGST Act. Therefore, the exporter will have to pay GST.

8.4 Purchase from individual

In many trade, it is common that individual person who are not registered sells the product to a registered person. For example, in case of jewellery, many individual sell their old jewellery and in return purchase new jewellery or merely sell old jewellery for cash. As per section 9(4) in case of supply by unregistered person to registered person, GST will be payable by the registered person. There was confusion whether individual person who is selling old jewellery can be said to have sold jewellery in the course or furtherance of business. It has been clarified by the Government in press release dated 13-7-2017 that the said transaction is not in the course or furtherance of business. It cannot be considered as supply attracting GST. The said clarification is reproduced below:

‘4. Even though the sale of old gold by an individual is for a consideration, it cannot be said to be in the course or furtherance of his business (as selling old gold jewellery is not the business of the said individual), and hence does not qualify to be a supply per se. Accordingly the sale of old jewellery by an individual to a jeweller will not attract the provisions of section 9(4) and jeweller will not be liable to pay tax under reverse charge mechanism on such purchases. However, if an unregistered supplier of gold ornaments sells it to registered supplier, the tax under RCM will apply.’

9. Reverse Charge in case of supplies from unregistered person (upto 31.01.2019.)

Section 9(4) of GST Act till 31.01.2019 provided for payment of GST in case of purchases made by registered person from unregistered supplier. This section has been amended with effect from 01.02.2019. As per amendment GST is payable on reverse charge only when purchases are made from categories of person specified in notification issued under section 9(4) of the GST Act. The same is discussed in para 12.12. Therefore, notification No. 8/2017-CT (Rate) dated 28.06.2017 which granted exemption from payment of tax to supplies received from unregistered person till 30.09.2019 is not relevant after 31.01.2019.

9.1 Change of rate

The grant of exemption is in the nature of change in rate of tax. The Section 14 of the CGST Act provides for determining the rate in case of change in rate of GST. Based on the provisions of the said section, the GST exemption will be determined as follows:

Date of Payment to unregistered vendor	Supply of goods or services by unregistered vendor	Date of issue of invoice	Exemption applicability
Upto 12th October	Upto 12th October	W.e.f. 13th October	No Exemption
Upto 12th October	W.e.f. 13th October	Upto 12th October	No Exemption
Upto 12th October	W.e.f. 13th October	W.e.f. 13th October	Exemption available
W.e.f. 13th October	Upto 12th October	W.e.f. 13th October	Exemption available
W.e.f. 13th October	W.e.f. 13th October	Upto 12th October	Exemption available
W.e.f. 13th October	Upto 12th October	Upto 12th October	No Exemption
W.e.f. 13th October	Upto 12th October	W.e.f. 13th October	Exemption available

Illustration: Mr. A an unregistered person is providing cleaning services to Mr. B since 1-7-2017 has the following details in respect of that activity for the month of September, 2017:

Amount ` (a)	Date of issue of invoice (b)	Date on which payment was received (c)
2,00,000	18-9-2017	14-10-2017
2,40,000	25-9-2017	6-10-2017
80,000	15-10-2017	20-10-2017

The date of ‘change in effective rate of tax’ in this case is 13-10-2017. The services are rendered in September, 2017. The time of supply for the amounts will be as follows:

Amount (`)	Time of Supply	Exemption availability
2,00,000	18-9-2017	No
2,40,000	25-9-2017	No
80,000	15-10-2017	Yes, as two events are after change of rate

10.  Tax payable by specified categories of person

Section 9(4) is replaced with new section by GST (Amendment) Act, 2018 which has been made effective from 1-2-2019. The said provision provides power to Government to specify supply of specified categories of goods or services or both received by the specified class of recipient from unregistered supplier, the tax in respect of which will be payable on reverse charge basis by the said recipient. Till to date no notification under this section has been issued.

11. No registration if tax is payable on reverse charge

The Government has power under section 9(3) of CGST Act and similar Act to specify supply of goods or services or both where the tax would be payable not by the supplier of goods or services but by the recipient of goods or services. If tax is payable by the recipient for all supplies, supplier of goods or services need not obtain registration. The Central Government has vide Notification No. 5/2017 Central Tax dated 19-6-2017 exempted such supplier of goods or services where entire tax is payable by the recipient, from obtaining registration.

12. Supply of services attracting reverse charge

Section 9(3) of CGST Act and similar provisions under other Acts empowers the Government on recommendation of GST Council to specify the categories of goods or services or both on which tax would be payable by the recipient of goods or services and not by the supplier. In exercise of the said power, Central Government has issued following notifications:

(a) 4/2017-Central Tax (Rate) dated 28-6-2017
(b) 13/2017-Central Tax (Rate) & 17/2017-Central Tax (Rate) both dated 28-6-2017
(c) 10/2017-Integrated Tax (Rate) and 14/2017-Integrated Tax (Rate) both dated 28-6-2017

The notification 17/2017-CT (Rate) specifies categories of services supplied through electronic commerce operators. The GST is payable by electronic commerce operators for such supplies. The scope of these supplies are not discussed in this chapter. The supply specified in notification mentioned in clause (a) to (c) above are briefly discussed in below paras:

12.14-1 Supply of goods

Notification No. 4/2017-Central Tax (Rate) specify the supply for which tax is payable by the recipient. The table given below the notification reads as follows:

Sr. No.	Tariff item, sub-heading, heading or Chapter	Description of supply of Goods	Supplier of goods	Recipient of supply
(1)	(2)	(3)	(4)	(5)
1.	0801	Cashew nuts, not shelled or peeled	Agriculturist	Any registered person
2.	1404 90 10	Bidi wrapper leaves (tendu)	Agriculturist	Any registered person
3.	2401	Tobacco leaves	Agriculturist	Any registered person
4.	5004 to 5006	Silk yarn	Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn	Any registered person
5.	–	Supply of lottery	State Government, Union Territory or any local authority	Lottery distributor or selling agent. Explanation.—For the purposes of this entry, lottery distributor or selling agent has the same meaning as assigned to it in clause (c) of Rule 2 of the Lotteries (Regulation) Rules, 2010, made under the provisions of sub-section (1) of section 11 of the Lotteries (Regulation) Act, 1998 (17 of 1998).
6.	Any Chapter	Used vehicles, seized and confiscated goods, old and used goods, waste and scrap	Central Government, State Government, Union territory or a local authority From 20/10/2023 Central Government [(excluding Ministry of Railways (Indian Railways)], State Government, Union Territory or a Local Authority.	Any registered person
7.	Any Chapter	Priority Sector Lending Certificate	Any registered person	Any registered person