REVERSE CHARGE MECHANISM AMENDMENTS EFFECTIVE FROM 1st FEBRUARY, 2019
The provisions of section 9 (4) of the CGST Act, 2017 deals with the applicability of reverse charge mechanism, wherein, the goods or services or both is being procured by the registered person from the unregistered person.
Due to its wide implication, the said provisions has already undergone various amendments, however, the entire provisions of section 9 (4) has been recently substituted by the CGST (Amendment) Act, 2018 which is effective from 1st February, 2019.
The entire stages of the amendment to section 9 (4), along with the recent substitution, is being explained in the present article.
UNDERSTANDING THE EARLIER PROVISIONS –
As per the earlier provisions of section 9 (4) of the CGST Act, 2017, the central tax in respect of a supply of taxable goods or services or both by an unregistered person to a registered person shall be paid by the registered person on a reverse charge basis. However, the said provisions and the effective date of the provisions has undergone various amendments, which is being tabulated hereunder –
| RELEVANT NOTIFICATION | RELEVANT AMENDMENTS |
| Notification no. 8/2017-Central Tax (Rate) dated 28th June, 2017 | Central tax payable on reverse charge basis on Intra-state supplies of goods or services or both received by the registered person from the unregistered person is exempted till an aggregate value of INR 5000 per day. |
| Notification no. 38/2017-Central Tax (Rate) dated 13th October, 2017 | Entire central tax payable on reverse charge basis on Intra-state supplies of goods or services or both received by the registered person from an unregistered person is exempted (i.e. exemption upto INR 5000 replaced and the entire transaction was exempted) till 31st March, 2018. |
| Notification no. 10/2018-Central Tax (Rate) dated 23rd March, 2018 | The above exemption was extended till 30th June, 2018 |
| Notification no. 12/2018-Central Tax (Rate) dated 29th June, 2018 | The above exemption was extended till 30th September, 2018 |
| Notification no. 22/2018-Central Tax (Rate) dated 6th August, 2018 | The above exemption was extended till 30th September, 2019 |
In nut-shell as per the earlier provisions, the central tax was payable by the registered person on reverse charge basis on all the transactions, wherein, the taxable goods or services or both is received by him from the unregistered person. However, the said applicability of reverse charge on registered person was exempted till 30th September, 2019.
AMENDED PROVISIONS AND ITS EFFECT THEREOF –
Vide the Central Goods and Service Tax (Amendment) Act, 2018 effective from 1st February, 2019, entire section 9 (4) of the CGST Act, 2017 was substituted. Now, let us understand what the substituted provisions of section 9 (4) says –
‘The Government may, on recommendations of the Council, by notification, specify the 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 tax on reverse charge basis as a 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’.
The outcome of the substituted section 9 (4) is pointed hereunder –
- Class of registered person who shall be liable to pay tax on a reverse charge would be specified (i.e. not all the registered person would be liable to pay tax on reverse charge only the specified registered person would be liable to pay the tax);
- Supply of only specified goods or services or both would be covered (i.e. only specified transaction of taxable supply of goods or services or both received by the registered person from the unregistered person would be covered).
CONCLUSION –
As seen above, as per the earlier provisions, all the transactions of the supply of taxable goods or services or both from an unregistered person to registered person were covered under reverse charge basis. However, the new provisions has limited its ambit and the applicability of reverse charge mechanism would be restricted only to the specified class of registered person and on receipt of only specified categories of goods or services or both.
It is important to note here that still the Government has not notified the specified class of registered person and the specified categories of goods or services or both to whom the provisions of reverse charge are applicable.
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