Give 3 circumstances in which the GST is reversed on purchase
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When is GST Reverse Charge Mechanism applicable?
GST Reverse Charge Mechanism (also known as RCM) is not applicable under normal circumstances. It is only applicable under the circumstances which are specifically mentioned in Section 9(4) and Section 9(3) which have been mentioned below.
It is important to note that the Reverse Charge under Section 9(4) i.e. for transactions with Unregistered Dealers have been postponed till 30th June 2018.
Reverse Charge under Section 9(3) i.e. for Transactions for specified goods and services are still applicable and Reverse Charge would continue to be levied.
Reverse Charge under Section 9(4) – Supply from Unregistered to Registered Person
If a person not registered under GST supplies Goods or Services to a person who is registered under GST, then in such cases – Reverse Charge Mechanism would get applicable i.e. the GST would be required to be paid by the Registered Person directly to the Govt on behalf of the supplier.
However, in case of supply of exempt goods or services, GST under Reverse Charge Mechanism shall not be applicable. This can be explained with the help of an example.
Example 1: A registered person hires an Auto Rickshaw for commuting from one place to another, then in such cases – Section 9(4) would not be applicable since the transportation of passenger by auto rickshaw is an exempted service.
Example 2: A registered person stays in a hotel whose room tariff is less than Rs. 1000. Section 9(4) would not be applicable since the services by a hotel having declared value less than Rs. 1000 per day or equivalent is an exempt service.
It is pertinent to note here that the provisions of Reverse Charge under Section 9(4) are applicable only for supplies within the same state. The provisions of Reverse Charge under this Section are not applicable to Inter-state supplies as inter-state supplies cannot be made by unregistered suppliers.
To make an inter-state supply, the 1stcondition is that the supplier should be registered under GST. And if the supplier is registered, the provisions of Reverse Charge under Section 9(4) would not apply and the normal mechanism of levy of GST would apply.
Example 3: Rajat (based in New Delhi) provides Consultancy Services to Sachin (based in Bangalore) and charges Rs. 20,000 for the same. Rajat is not registered under GST but Sachin is registered. Would the provisions of Reverse Charge apply in this case?
Solution: In the above mentioned case, as Mr. Rajat is providing an inter-state service, he would be required to mandatorily get registered under GST. Without getting registered – he cannot provide inter-state service. Only registered persons can provide inter-state service.
To provide inter-state service, Mr. Rajat would be required to get registered. And once, he gets registered, this would be a transaction between Rajat and Sachin both of whom are registered under GST and therefore the provisions of Section 9(4) won’t apply for the levy of GST.
GST Reverse Charge Mechanism (also known as RCM) is not applicable under normal circumstances. It is only applicable under the circumstances which are specifically mentioned in Section 9(4) and Section 9(3) which have been mentioned below.
It is important to note that the Reverse Charge under Section 9(4) i.e. for transactions with Unregistered Dealers have been postponed till 30th June 2018.
Reverse Charge under Section 9(3) i.e. for Transactions for specified goods and services are still applicable and Reverse Charge would continue to be levied.
Reverse Charge under Section 9(4) – Supply from Unregistered to Registered Person
If a person not registered under GST supplies Goods or Services to a person who is registered under GST, then in such cases – Reverse Charge Mechanism would get applicable i.e. the GST would be required to be paid by the Registered Person directly to the Govt on behalf of the supplier.
However, in case of supply of exempt goods or services, GST under Reverse Charge Mechanism shall not be applicable. This can be explained with the help of an example.
Example 1: A registered person hires an Auto Rickshaw for commuting from one place to another, then in such cases – Section 9(4) would not be applicable since the transportation of passenger by auto rickshaw is an exempted service.
Example 2: A registered person stays in a hotel whose room tariff is less than Rs. 1000. Section 9(4) would not be applicable since the services by a hotel having declared value less than Rs. 1000 per day or equivalent is an exempt service.
It is pertinent to note here that the provisions of Reverse Charge under Section 9(4) are applicable only for supplies within the same state. The provisions of Reverse Charge under this Section are not applicable to Inter-state supplies as inter-state supplies cannot be made by unregistered suppliers.
To make an inter-state supply, the 1stcondition is that the supplier should be registered under GST. And if the supplier is registered, the provisions of Reverse Charge under Section 9(4) would not apply and the normal mechanism of levy of GST would apply.
Example 3: Rajat (based in New Delhi) provides Consultancy Services to Sachin (based in Bangalore) and charges Rs. 20,000 for the same. Rajat is not registered under GST but Sachin is registered. Would the provisions of Reverse Charge apply in this case?
Solution: In the above mentioned case, as Mr. Rajat is providing an inter-state service, he would be required to mandatorily get registered under GST. Without getting registered – he cannot provide inter-state service. Only registered persons can provide inter-state service.
To provide inter-state service, Mr. Rajat would be required to get registered. And once, he gets registered, this would be a transaction between Rajat and Sachin both of whom are registered under GST and therefore the provisions of Section 9(4) won’t apply for the levy of GST.
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