Zirakpur

casunilkumar89@gmail.com
+91 9654058508

Below given text is replica of Sub-Section (4) of Section 9 of CGST Act:

“The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient 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.” 

Same language is used in IGST Act, UGST Act and SGST Act with necessary changes for name of Tax and Act.

As per this provision, every purchase, by a REGISTERED PERSON, of Goods or Services or both must have a tag of GST for that Registered Person.

i.e. If a Registered person has purchased Goods or Services or both from a person who is not a Registered Person under GST, then he himself have to pay this tax to Government.

Due to this provision, even one day small supply by a casual laborer (having value let’s assume payment of Rs 500/- to such person) will also be liable to GST under Reverse Charge. It will increase the un-necessary compliance burden on small assesses.

Major impacts of this provision on registered persons are:

  • Increase in cost base of Inputs/Input Services {e.g. where final products are sold under Composition Levy, Sale of goods/services on abated values or where Input tax credit is not allowed on goods or services}.
  • Increasing working capital requirements at a given point of time due to Payment of GST Rules {As per Payment Rules, amount payable as GST under reverse charge must be paid through Electronic Cash Ledger (i.e. Assessee can’t use Input Tax credits of to set off this liability).
  • Registered person recipient has to issue an invoice for such goods/services purchased from unregistered dealer.
  • Increase compliance burden like maintenance of special records, timely payments and correct effect in Tax returns.

At present, Government has neither provided any threshold limit for the applicability of this provision nor provided any power to GST Council to provide exemptions or exceptions. Intention of Government is clear that it wants to bring each transaction into Tax net.

It means that every registered person must comply with this provision for every transaction which is taxable under GST.

In our view, Government should provide some exceptions or exemptions towards applicability of this provision like:

  • Taxable persons to cover only those having at least such prescribed amount of Turnover, for instance, only those assessees having turnover of more than Rs fifty lakhs have to comply with this provision;

Or for

  • Amount of Supply to cover only those supplies whose minimum value is as prescribed, for instance, only those transactions to be covered by this provision whose transaction value is more than Rs 2000/- per transaction (or collectively Rs 50,000/- per annum per unregistered person)

Following categories of Businesses will majorly be impacted by this provision :

  • Dealers registered under Composition Levy rules (increase cost base)
  • Dealers whose Output tax rate is lower than rate of Input Tax (Increase in Working Capital Requirements)
  • Dealers who are paying GST on abated value of their Supplies (increase cost base)
  • Small businesses (it will increase compliance cost)
  • Dealers having only Zero Rated Supplies (It will increase the Working Capital Requirements)

Finally government has provided some relief from Reverse Charge provisions for purchase from un-registered suppliers.

Now, exemption is provided for in case of intra-state purchase of goods or services or both from any or all unregistered dealers upto Rs 5000/- per day. It means, if you are buying from un-registered dealers within State/UT, and sum total of a day of such purchases is less than Rs 5000/-, than GST not required to pay under reverse charge for that particular day.

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *