Reverse Charge Mechanism (RCM) under GST

Table of Contents:

1. Background
2. Rationale behind Reverse Charge
3. Statutory Provisions
4. Reverse Charge on Supply of Goods also
5. No partial payment of tax by the supplier
6. Collection of Tax at Source and Tax Deduction at Source are different
7. Tax cannot be Collected from Two Persons
8. Utilization of Credit
9. Revenue Neutral
10. Supply by Unregistered Person to Registered Person [up to 31-1-2019]
11. Supply through Electronic Commerce Operator
12. No Registration if Tax is payable on Reverse Charge
13. Supply attracting Reverse Charge
14. GTA Services

Refer to Taxmann's bestselling commentary - GST How to Meet Your Obligations (12th Edition) authored by S.S. Gupta

It explains every concept of GST in a lucid manner. The various provisions contained in different statutes are discussed in sixty chapters giving the scope of provisions of section, rules, supported by judgements or orders of various Tribunals, High Courts and Supreme Court. The provisions are also explained in different places by way of giving examples.

1. 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.

2. 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 Service 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 Rs. 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.

3. 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 receipt is liable to pay GST on goods or services received by him from unregistered persons.

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;

3.1 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 (N. 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.

4. 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.

5. 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.

5.1 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.

6. Collection of Tax at Source and Tax Deduction at Source are different

Section 52 of the GST Act provides that the electronic commerce operator shall collect an amount calculated at such rate not exceeding one per cent, as may be notified by the Government on the recommendations of the Council, of the net value of taxable supplies made through it by other suppliers where the consideration with respect to such supplies is to be collected by the operator.

Section 51 of the GST Act provides that the Central or State Government may mandate any or all of the following persons to deduct the tax at source and pay to the credit of Government. The sub-section (1) read as follows :

(a) a department or establishment of the Central Government or State Government; or

(b) local authority; or

(c) Governmental agencies; or

(d) such persons or category of persons as may be notified by the Government on the recommendations of the Council,

(hereafter in this section referred to as “the deductor”), to deduct tax at the rate of one per cent from the payment made or credited to the supplier (hereafter in this section referred to as “the deductee”) of taxable goods or services or both, where the total value of such supply, under a contract, exceeds two lakh and fifty thousand rupees:

Provided that no deduction shall be made if the location of the supplier and the place of supply is in a State or Union territory which is different from the State or as the case may be, Union territory of registration of the recipient.

Explanation.—For the purpose of deduction of tax specified above, the value of supply shall be taken as the amount excluding the Central tax, State tax, Union territory tax, integrated tax and cess indicated in the invoice.

In both the cases the deductor does not become the assessee. His responsibility is to deduct the tax and deposit it with the Government. However, in case of tax payable on reverse charge, the person is liable to pay the tax. He shall be treated as assessee. Section 9(3) & (4) of GST Act excluding IGST Act and section 5(3) & (4) of IGST Act also provides that all the provisions of the Act shall apply to such person as if he is person liable to pay tax. Therefore, he has to take registration, pay tax, file return and comply with all other formalities. He steps into the shoes of the supplier.

7. 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.-Del.).

8. 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.

9. 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 pre-requisite 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 (T); 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.

10. 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.

10.1 From an unregistered person for value up to Rs. 5,000 in a day

As per Sec 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).

• • Exemption is available only for intra-state supplies. Thus location of supplier and place of supply should be in the same state.
  • 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 Rs. 5,000 in a day. If the value exceeds Rs. 5000 per day then the GST will be payable on the entire value. e.g. if a person buys goods worth Rs. 2000 and Rs. 3500 from two unregistered supplier in a day, then GST will be paid on the entire value of Rs. 5500 under RCM by the buyer.
  • 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.

10.2 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 Rs. 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 Rs. 5000. 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.

10.3 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.

10.4 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.

10.4.1 Reverse charge in case of supplies from unregistered person [upto 31-1-2019]

The Not. No. 8/2017-CT (Rate) dated 28-06-2017 provides exemption to intra state supplies from unregistered person to registered person. However as per the proviso to said notification such exemption shall not be available if value of such supplies exceeds Rs. 5000 in a day. Thus no GST will be payable on supplies received from unregistered person not exceeding Rs. 5000 in day.

However, Government on the recommendation of the council vide Not. No. 38/2017-Central Tax (Rate) dated 13-10-2017 has omitted the proviso to Not. No. 8/2017-CT (Rate) 28-06-2017. Therefore with effect from 13-10-2017 supplies received from unregistered supplier will not attract GST irrespective of value of supplies received. The benefit of such notification is available till 31-03-2018.

As exemption has been granted, there will be no requirement to prepare an RCM self-invoice at month end. Consequently, there is no requirement to issue the payment voucher under GST for such payments.

• • The Government on recommendation of the council vide Notification Number 10/2018-CT(Rate), dated 23-3-2018 has further deferred the liability to pay tax on reverse charge basis when the supplies has been procured from an unregistered supplied till 30-06-2018. Similar notification has been issued under IGST Act, SGST Act and UTGST Act.
  • Applicability of Section 9(4) further deferred – The Government on recommendation of the council vide Notification Number 12/2018-CT(Rate), dated 29-06-2018 has further deferred the liability to pay tax on reverse charge basis when the supplies has been procured from an unregistered supplied till 30-09-2018. Similar notification has been issued under IGST Act, SGST Act and UTGST Act.

Section 9(4) has been replaced by GST (Amendment) Act, 2018 w.e.f. 1-2-2019. Therefore, notification granting exemption from payment of GST till 30-9-2019 referred above is not relevant after 31-1-2019

• • Applicability of Section 9(4) further deferred – The Government vide Notification No. 22/2018- CT (Rate) dated 6-8-2018 has further deferred the liability to pay tax on reverse charge basis when supply has been procured from unregistered supplier till 30-09-2019. Similar notification has been issued under IGST Act, SGST Act and UTGST Act.

10.4.1.1 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 Rs. (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 (Rs.)	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

10.4.1.2 Tax payable in respect of specified categories

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. Supply through Electronic Commerce Operator

Section 9(5) of GST Act and similar other provision in other GST Act empowers the Central Government on recommendation of Council to specify the categories of services on which tax shall be paid by Electronic Commerce Operator if such services are supplied through him. The Central Government in exercise of said power has issued notification No. 17/2017-CT (Rate) and specified different type of services including accommodation service. Therefore, tax on such services is payable by Electronic Commerce Operator.

The first proviso further provides that if electronic commerce operator is not present in taxable territory, any person representing such electronic commerce operator will be liable for payment of tax under reverse charge. In case no person represents electronic commerce operator in taxable territory, the electronic commerce operator shall appoint the person for the purpose of payment of tax. Refer Chapter 12 of (11th Edition) of Taxman’s GST How to Meet You Obligations authored by S.S. Gupta.

12. 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.

13. Supply 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 supply covered under this notifications are briefly discussed below:

13.1 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	Any registered person
7.	Any Chapter	Priority Sector Lending Certificate	Any registered person	Any registered person

• • SUPPLY BY CENTRAL GOVERNMENT, STATE GOVERNMENT, UNION TERRITORY OR A LOCAL AUTHORITY – The Entry No. 6 added vide Notification No. 36/2017 – CT(Rate) dated 13/10/2017 provides that the registered person will be required to pay the GST on sale of used vehicles, seized and confiscated goods, old and used goods and waste used scrap. Thus, if the Central Government, State Government, Union Territory or local authority sells any of the specified items to a registered person, they need not pay GST. The GST will be paid by the registered person.

However, if these items are sold to unregistered person, the CBEC has clarified vide Notification No. 76/50/2018 – GST dated 31/12/2018 that in such case, the GST will be payable by the respective Government department and not by the recipient. Thus, the Government department may be liable to pay GST. It will be advisable for Government Department to sell such items only to the person registered under GST.

13.1.1 Sale of priority sector lending certificate

As per the RBI Guidelines, banks are required lend certain percentage of their loan to Priority Sector. The waiver for payment of IGST has also been granted vide Circular No. 93/12/2019 – GST in case of supply of Priority Sector Lending Certificate where CGST/SGST has been paid. There are certain banks (say M/s. X) who have given loan to the priority sector more than the quantum specified in the RBI Guidelines. Whereas other banks (say M/s. Y) have given loan of less than the quantum specified in the RBI Guidelines. The RBI Guidelines permit M/s. X Bank to issue the certificate known as PSLC to M/s. Y Bank for some consideration. Such certificates are traded in e-Kuber Portal of RBI.

• • REVERSE CHARGE – As per Entry No. 7 of Notification No. 4/2017 – CT (Rate), the GST w.e.f. 28/05/2018 is payable by the recipient of supply who should be a registered person. The GST prior to 28/05/2018 is payable by seller as per clarification given by CBEC vide Circular No. 62/36/2018 – GST dated 12/09/2018.
  • NATURE OF TAX PAYABLE – There was a further issue whether IGST or CGST/SGST is payable, as the location of supplier and the purchaser is not known. The CBEC vide Circular No. 93/12/2019 – GST dated 08/03/2019 has clarified that IGST is payable by the recipient. Therefore, subsequent to 8^th March such transaction will attract payment of IGST. It is further clarified in the same Circular that if the bank has already paid CGST & SGST prior to this date, then they will not be required to pay IGST again.

13.1.2 Supply of services

Notification No. 13/2017-Central Tax (Rate) read with notification No. 17/2017-Central Tax (Rate) specifies 11 services in respect of which tax is payable by the recipient of service. The notification No. 10/2017-Integrated Tax (Rate) read with notification No. 14/2017-Integrated Tax (Rate) specifies 13 services in respect of which tax is payable by the recipient of service. 11 Services specified in notification Nos. 10/2017-Integrated Tax (Rate) and 14/2017-Integrated Tax (Rate) are identical as specified in notifications of Central Tax.

The scope of all services specified in both the notifications viz. Central Tax and Integrated Tax are discussed in following paras:

(a) GTA Services

(b) Legal Services

(c) Arbitral Tribunal

(d) Sponsorship Services

(e) Services by Government or Local Authority

(f) Services by Government/Union Territory/Local Authority by of renting immovable property

(fa) Transfer of development rights or Floor Space Index (FSI) w.e.f. 01/04/2019.

(fb) Long term lease of land w.e.f. 01/04/2019

(g) Services by Director

(h) Insurance Agents

(i) Recovery Agents

(j) Author, Music Composer, Photographer, Artist, etc. (upto 30/09/2019)

(ja) Music Composer, Photographer, Artist, etc. (w.e.f. 01/10/2019)

(jb) Services by Author (w.e.f. 01/10/2019)

(k) Transportation of Passenger

(l) Accommodation in Hotel, Inn, etc.

(m) Supply of online information and database services by person in non-taxable territory

(n) Transportation of goods by vessel

(o) Housekeeping Services (w.e.f. 22-8-2017)

(p) Services by Overseeing Committee to RBI (w.e.f. 13-10-2017)

(q) Services by direct selling agents (w.e.f. 27-7-2018)

(r) Services by Business Facilitator to Banking Company (w.e.f. 1-1-2019)

(s) Services by Agents of Business Correspondent to Business Correspondent (w.e.f. 1-1-2019)

(t) Security services (w.e.f. 1-1-2019)

(u) Renting of motor vehicle (w.e.f. 01/10/2019 to 30/12/2019)

(ua) Renting of motor vehicle (w.e.f. 31/12/2019)

(v) Lending of securities (w.e.f. 01/10/2019)

14. GTA Services

Sr. No. 1 of notification under Central Tax and Sr. No. 2 of notification under Integrated Tax provides that tax will be payable by the recipient of service in respect of services provided by GTA to specified person. The entry in both the notification reads as follows:

Sl. No.	Category of Supply of Services	Supplier of service	Recipient of Service
(1)	(2)	(3)	(4)
1	Supply of Services by a goods transport agency (GTA) 1[who has not paid central tax at the rate of 6%] in respect of transportation of goods by road to— (a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948); or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person.	Goods Transport Agency (GTA)	(a) Any factory registered under or governed by the Factories Agency Act, 1948 (63 of 1948); or (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or (c) any co-operative society established by or under any law; or (d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; or (g) any casual taxable person: “Provided that nothing contained in this entry shall apply to services provided by a goods transport agency, by way of transport of goods in a goods carriage by road, to, – (a) a Department or Establishment of the Central Government or State Government or Union territory; or (b) local author-ity; or (c) Governmental agencies, which has taken registration under the Central Goods and Services Tax Act, 2017 (12 of 2017) only for the purpose of deducting tax under section 51 and not for making a taxable supply of goods or services” located in the taxable territory.

Clause (a) of the explanation given below the notification provides that the person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification. The scope of this entry has been discussed in following sub-paras:

(a) Meaning of Goods Transport Agency and Goods Carriage

(b) Issuance of consignment note is mandatory

(c) Meaning of goods

(d) Person liable to pay tax

(e) Recipient located in non-taxable territory

(f) Payment of tax by GTA

(g) Support services

(h) Services to Government, Local authority or Governmental authorities

14.1 Meaning of ‘Goods Transport Agency’

‘Goods transport agency’ is defined in para 2(ze) of notification 12/2017-Central Tax (Rate) as follows :—

(ze) ‘Goods transport agency’ means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called

The clause 2(zd) of notification 12/2017-Central Tax (Rate) defines ‘goods carriage’ as meaning assigned to it in clause (14) of Section 2 of Motor Vehicle Act. It means vehicle shall have permit to transport goods.

The essential ingredients

The definition contemplates satisfaction of following ingredients for any agency to be termed as a ‘goods transport agency’

The agency must be any person

It must provide the services in relation to transport of goods by road and must issue consignment note by whatever name called.

14.1.1. Meaning of ‘Person’

The ‘person’ is defined in section 2(84).

• • MEANING OF ‘IN RELATION TO’ – The words ‘in relation to’ have been held to be equivalent to or synonymous with ‘concerning with’ or ‘pertaining to’, and as words of comprehensiveness which might both have a direct significance as well as indirect significance depending on the context –

Doypack Systems (P.) Ltd. v. Union of India 1988 (36) ELT 201 (SC). It can be said that any service which has a direct or indirect connection with a specified service has to be treated as ‘in relation to’ that specified service.

• • MEANING OF ‘TRANSPORT OF GOODS BY ROAD’ AND ‘ISSUE OF CONSIGNMENT NOTE’ – The Act provides that both the conditions, namely, transport of goods by road and issue of consignment note must be satisfied. Normally, when a person deposits the goods with any transporter for the purpose of transport to a given destination, the transporter issues the lorry receipt or consignment note to the person depositing the goods. The name of the consignee is mentioned on such note. The original copy of the lorry receipt is sent by the person depositing the goods to the consignee to enable him to collect the goods from the transporter. Say A intends to transport the goods from Mumbai to Jaipur, A will deposit the goods with a transporter say ‘Z’ who will issue the consignment note in favour of consignee, i.e., ‘B’ in Jaipur. A will send the original copy of the consignment note to B to enable him to collect the goods from the office of ‘Z’ situated in Jaipur. The definition contemplates that the consignment note must be issued by goods transport agency.

14.1.2 Departmental Clarification

The meaning of term Goods Transport Agency is discussed in clause (ze) of para 2 of Not. No. 12/2017-CT (Rate), dated 28-6-2017 which is reproduced above. It is evident from the above that GTA provides services ‘in relation to’ transportation of goods by road for which consignment note is issued. The GST council on their 21st meeting held in Hyderabad on 9-9-2017 had decided to clarify as follows:

The use of the phrase ‘in relation to’ has extended the scope of the definition of GTA. It includes not only the actual transportation of goods, but any intermediate/ancillary service provided in relation to such transportation, like loading/unloading, packing/unpacking, trans-shipment, temporary warehousing, etc. If these services are not provided as independent activities but are the means for successful provision of GTA Service, then they are also covered under GTA.

Thus, it is evident from above that GTA Service not only includes transportation of goods but it also includes various other services like loading/unloading, packing/unpacking, transshipment, temporary warehousing, etc. for provision of GTA service. Thus, if such services are provided independent to transportation of goods then the same will not be covered under the services of Goods Transport Agency.

14.2 Issue of Consignment Note is made Mandatory

It is mandatory for every goods transport agency which provides service in relation to transport of goods by road to issue a consignment note to the recipient of service containing the prescribed particulars. The similar definition of GTA was provided in section 65(50b) in Chapter V of the Finance Act, 1994. The Tribunal in context of said definition has emphasised this aspect in the case of Bharati Soap Works v. CCE [2008] 13 STT 196 (Bang. – CESTAT). The Tribunal observed that the transporters are bound to issue the consignment note or Bills or any other serially numbered bills.

14.2.1 Individual Transporter not issuing consignment note

The service tax on goods transport agency was introduced w.e.f. 1-1-2005. The then Finance Minister Shri. P. Chidambaram, in his Budget Speech on 08/07/2004 had stated as follows:

58. services have been brought under the net so far. I propose to add some more this year. These are business exhibition services, airport services, services provided by transport booking agents, transport of goods by air, survey and exploration services, opinion poll services…… I may clarify that there is no intention to levy service tax on truck owners or truck operators.

Based on the speech, the Tribunal in number of cases has held that there is no liability to pay the service tax by the recipient of service in case of transportation undertaken by individual truck operator/lorry owners. These truck operators normally do not issue consignment note. In CCE v. Kanaka Durra Agro Oil Products (P.) Ltd. [2009] 22 STT 435 (Bang. CESTAT), it has been confirmed that there is no liability to pay service tax on the recipient of the service in cases of transportation undertaken by the individual truck operators/lorry owners. [see also Lakshminarayana Mining Co. v. CST [2010] 24 STT 61 (Bang. CESTAT)/MSPL Ltd. v. CCE [2010] 27 STT 400 (Bang. – CESTAT)/Shanti Fortune (India) (P.) Ltd. v. CCE [2010] 24 STT 464 (Chennai – CESTAT)/Bellary Iron & Ores (P.) Ltd. v. CCE [2010] 24 STT 557 (Bang. – CESTAT)/Wood Bridge Tea Factory v. CCE [2010] 25 STT 263 (Chennai – CESTAT)/Ultra Tech Cement v. CCE [2010] 29 STT 114 (Bang. – CESTAT).

The definition of ‘goods transport agency’ as given in Section 65(50b) of the Finance Act, 1994 is identical to the definition of goods transport agency given in Notification No. 12/20017 – CT (Rate). Therefore, it appears that the ratio of the earlier judgment will still be applicable in the GST also.

• • Exemption from payment of tax – Individual Transporter are also exempt from payment of GST as per Entry No. 18 of Notification No. 12/2017-CT (Rate). Therefore, they will be required to issue bill of supply as per rule 49 of the CGST Rules.

14.3 Person liable to pay tax (Reverse charge)

As per Sr. No. (1) of Notification No. 13/2017-Central Tax, dated 28-06-2017, GST in respect of services of transportation of goods by road supplied by goods transport agency is payable by recipient of service where the consignee or consignor is any of the following :

(a) Any factory registered under or governed by the Factories Act, 1948 (63 of 1948); or

(b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; or

(c) any co-operative society established by or under any law; or

(d) any person registered under the Central Goods and Services Tax Act or the Integrated Goods and Services Tax Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act; or

(e) any body corporate established, by or under any law; or

(f) any partnership firm whether registered or not under any law including association of persons; or

(g) any casual taxable person;

located in the taxable territory.

If the recipient of service is person other than mentioned above, GST will be payable by Transporter.

Further, Explanation (a) of Notification No. 13/2017-Central Tax, dated 28-06-2017 provides that GST is payable by the person who pays or is liable to pay freight by himself or through agent for transportation of goods by road in goods carriage located in taxable territory shall be treated as person who receives service for the purpose of this notification. Thus, the liability to pay GST is upon the person who as per the contract is liable to pay the amount to the transporter. However, when such person is located in a non-taxable territory, the provider of such service shall be liable to pay GST. If the payment is made by person other than mentioned above, the GST is payable by provider of service.

14.4 Recipient located in non-taxable territory

If the person liable to pay GST is located outside taxable territory, then, such person will not be considered as recipient of service. The clause (a) in Explanation makes it evident that recipient shall be located in taxable territory. If recipient is located in non-taxable territory, the tax will be payable by GTA as entry number 1 referred above is not applicable.

_______________________

1.Inserted by the Notification No. 22/2017, dated 22-8-2017.