In certain cases, the recipient of Goods or Services is liable to pay GST on Reverse Charge Basis. Procedure and Compliances regarding Such RCM payment shall be discussed in this article.
Reverse Charge Mechanism (RCM)
Commonly, the supplier of goods or services is liable to pay the GST on the supplies. However, in case of a reverse charge of mechanism the recipient is liable to pay GST on some specified cases like imports and other notified supplies. Reverse Charge means the liability to pay in respect of then notified categories of supply is vested upon the recipient of supply of goods or services instead of the supplier of such goods or services.
Applicability of Reverse Charge
Reverse Charge shall be applicable to two types of situations as provided in law.
- Situation-1: Applicability of Reverse Charge depends upon the nature of the supply and or nature of the supplier. This situation is covered by section 9 (3) of the CGST/ SGST (UTGST) Act and section 5 (3) of the IGST Act.
- Situation-2: In the second situation as per the provisions of section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act the reverse charge shall be applicable on the taxable supplies made by any unregistered person to a registered person.
Note: As per the notification, the applicability of Reverse Charge as per the provisions of section 9 (4) of the CGST/SGST (UTGST) Act and section 5 (4) of the IGST Act on supply of goods or services by the unregistered person to the registered person is deferred to 30th September 2019.
Procedure to Discharge RCM Liability
Time of Supply of Goods taxable under Reverse charge
As per the provisions of sub-section 3 of section 12 of the GST act, Time of Supply of Goods taxable under reverse charge shall be as the earlier of the following dates
- The date on which Goods received.
or
- Date of payment as recorded in the books of account of the recipient.
or
- The date on which payment is debited from the bank account of the recipient.
or
- 31st day from the date of issuance of the Invoice by the supplier.
Note: In case the aforesaid dates are unascertainable, Time of Supply shall be the date of entry of Goods in the books of account of the recipient.
Time of Supply of Services taxable under Reverse charge
As per the provisions of sub-section 3 of section 13 of the GST act, Time of Supply of Services taxable under reverse charge shall be as the earlier of the following dates
- Date of payment as recorded in the books of account of the recipient.
or
- The date on which payment is debited from the bank account of the recipient.
or
- 61st day from the date of issuance of the Invoice by the supplier.
Note: In case the aforesaid dates are unascertainable, Time of Supply shall be the date of entry of services in the books of account of the recipient.
Self-Invoicing
As per the provisions of Section 31(3)(f) the registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 has to issue an invoice (self-Invoicing) in respect of goods or services or both supplied to him by the unregistered supplier (supplier not registered on the date of receipt of goods or services or both).
The issue of Self Invoicing is not required in case the supplier of Goods or Services or both is a registered person.
Self-Payment Voucher
As per the provisions of Section 31(3)(g) the registered person who is liable to pay GST under sub-section (3) or sub-section (4) of section 9 has to issue a payment voucher at the time of making payment to the supplier.
Payment of RCM Liability
As per Rule 85 of the CGST Rules, 2017 liability under RCM shall be discharged or paid by way of debiting the electronic cash ledger and the tax paid under RCM shall be taken as Input Tax Credit (ITC).