Understanding Reverse Charge under GST
In taxing statute, the charging section provides for the liability to pay tax and the mechanism is called tax paid under forward charge. Under Service Tax, the liability to pay tax was on the ‘person providing the services’, hence the service provider was discharging the tax liability under forward charge. But, in some cases, the charge get’s reversed and the recipient discharges tax liability under the reverse charge.
It seems the concept has been borrowed for Goods and Services Tax (herein referred to as ‘GST’) for both goods and services.
As per section 9 (1) of the Central/State Goods and Services Tax, 2017 (herein collectively referred to as ‘GST Act’) [‘charging section’] GST is paid by the taxable person. On perusal of section 2(107) r/w. section 24 of the GST Act, it may be construed that taxable person interalia includes ‘persons who are required to pay tax under reverse charge’. Resulting reverse charge falling under forward, gibberish right, but true.
Mostly, reverse charge is defined as ‘liability to pay tax by the person receiving the services or goods or both’. It may be so, if the definition is construed in light of section(s) 9(3) and 9(4) of the GST Act. Besides, a better way to spell it out as, ‘liability to pay tax get’s reversed from usual liability as stated in the charging section’.
Under section 2 (98), reverse charge is defined as ‘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’.
Apart from the statutory definition of reverse charge, there are two specific provisions i.e sections 9(3) and 9(4) under which GST is payable on reverse charge basis by the recipient (apart from GST Act, kindly refer sec(s). 5(3) and 5(4) of IGST Act).
Relevant Reverse Charge provisions under GST are reproduced hereinbelow for ease of reference:
S. 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. Resultanty, under reverse charge, GST is payable by a person who is the recipient of goods or services or both.
S. 9 (4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to such supply of goods or services or both.
Note: (i) No relevant notification under section 9(4) specifying the class of registered person on whom reverse charge is applicable and (ii) Relevant notification under section 9(3) of the CGST Act (as amended from time to time) are (a.) Notification No.4/2017-Central Tax (Rate) and (b.) Notification No. 13/2017- Central Tax (Rate)
You may reach the author at abhishek@gstivy.in
Disclaimer: The views expressed by the author(s) are personal and academic in nature. This blog post is not a substitute for professional legal advice.
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