As per Section 2(98) of the CGST Act, 2017 ‘reverse charge’ means 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 IGST Act, 2017.
In accordance to the powers conferred under sub-section (3) of section 9 of CGST Act, 2017 and under sub-section (3) of section 5 of IGST Act, 2017, Notification No. 4/2017-Central Tax (Rate) dated 28-6-2017 and Notification No. 4/2017-Integrated Tax (Rate) dated 28-6-2017 (as amended) (RCM Notifications) are issued by Central Government, notifying the eight situations wherein supply of goods would be covered under reverse charge mechanism.
Similarly Notification No. 13/2017-Central Tax (Rate) dated 28-6-2017 and Notification No. 10/2017-Integrated Tax (Rate) dated 28-6-2017 (RCM Notifications) were issued by Central Government, notifying the twenty two situations wherein supply of services would be covered under ambit of reverse charge mechanism (RCM). For detailed list of services subject to RCM , relevant definitions and date of applicability of RCM, please refer to our article “ Reverse Charge Ready Reckoner”.
It may be noted here that reverse charge shall be applicable only when notified supplies (which should not be exempt) are made by such suppliers to and to such recipient as mandated in RCM Notifications. For example legal services by individual advocate or a firm of advocates to any business entity located in taxable territory is only liable to RCM. If any of the three conditions (i.e. i) supply is not of notified good / service, ii) supplier or iii) recipient is not the person as specified in the RCM Notification), are not fulfilled RCM will not apply.
GST registration mandatory if liable to pay tax under reverse charge irrespective of turnover
As per Section 24(iii) of the CGST Act, 2017 persons required to pay tax under reverse charge are required to be registered under the Act even if their aggregate turnover is below the threshold limit as prescribed under Section 22(1). This is due to fact that Section 24 starts with an non obstante clause and overrides Section 22 of the CGST Act,2017.
For detailed deliberation on the concept of aggregate turnover and its relevance for registration our article “Lets relearn the concept of threshold exemption and aggregate turnover under GST Law” may be referred to.
Person exclusively engaged in exempt supply also required to take registration if liable for reverse charge
Persons engaged exclusively in exempt supplies are exempted from taking GST registration under Section 23(1)(a) of the CGST Act,2017. However as Section 24 is an independent Section and even though it does not specifically override Section 23, such persons will have to obtain GST registration if they receive supplies which are subject to reverse charge mechanism even if they are engaged exclusively in exempt supplies.
However it may be noted that obtaining registration will not mean such persons will be liable to pay tax on exempt supply, it only means that it will pay tax under reverse charge on taxable supplies received, which are subject to RCM.
For fully understanding the above please refer to our article “Requirement for GST registration for persons exclusively engaged in exempt supplies“.
Situations where registration is not required to be obtained even if reverse charge supplies are received
As discussed above, person who is receiving supplies subject to RCM are required to obtain GST registration. However the RCM Notifications have prescribed that in certain cases reverse charge will be applicable only if the supplies are received by registered persons. Thus if supplies are received by unregistered persons in such cases, they will not be liable to pay tax under reverse charge and consequentially will also not be liable to obtain GST registration.
Goods
In respect to goods out of eight situations where reverse charge applies, in case of seven situations it is mandated that the recipient of supply should be a registered person. The only situation left out being supply of lottery. The list of seven situations is as under:-
| S. No. | Tariff Item, Sub-heading, or Chapter | Description of Supply of Goods | Supplier of Goods | Recipient of Supply |
| (1) | (2) | (3) | (4) | (5) |
| 1. | 0801 | Cashew nuts, not shelled or peeled | Agriculturist | Any registered person |
| 2. | 1404 90 10 | Bidi wrapper leaves(tendu) | Agriculturist | Any registered person |
| 3. | 2401 | Tobacco leaves | Agriculturist | Any registered person |
| 4. | 5004 to 5006 | Silk yarn | Any person who manufactures silk yarn from raw silk or silk worm cocoons for supply of silk yarn | Any registered person |
| 5. | 5201 | Raw cotton (RCM applicable from 15.11.2017) | Agriculturist | Any registered person |
| 6. | Any Chapter | Used vehicles seized and confiscated goods, old and used goods, waste and scrap (RCM applicable from 13.10.2017) | Central Government, State Government, Union territory or a Local authority. | Any registered person |
| 7. | Any Chapter | Priority Sector Lending Certificate (RCM applicable from 28.05.2018) | Any registered person | Any registered person |
Services
It may be noted that out of twenty two situations wherein reverse charge is applicable, in only two situations it has been prescribed that reverse charge shall be applicable where the recipient of supply is a registered person. These two situations are tabulated below for ready reference of our readers.
| Sr. No. | Category of Supply of Services | Supplier of Service | Recipient of service |
| (1) | (2) | (3) | (4) |
| 1 | Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017. (RCM applicable from 25.01.2018) | Central Government, State Government, Union territory or Local Authority. | Any person registered under the CGST Act/ IGST Act, 2017 |
| 2 | Security Services (services provided by way of supply of security personnel) provided to a registered person : Provided that nothing contained in the entry shall apply to,- (i)(a) a Department or Establishment of the Central Government or State Government or Union territory; or (b) local authority; or (c) Government agencies; which has taken registration under the CGST Act, 2017 only for the purpose of deducting tax under Section 51 of the said Act and not for making a taxable supply of goods or services; or (ii) a registered person paying tax under Section 10 of the said Act. (RCM applicable from 01.01.2019) | Any person other than a body corporate. | A registered person, located in the “taxable territory.” |
Concluding remarks
Persons liable to pay tax under reverse charge are liable to obtain registration under Section 24(iii) of the CGST Act,2017. As per reverse charge notifications issued in case of 7 out of 8 situations in case of goods and 2 out of 22 services, it has been mandated that reverse charge would be applicable, if such goods or services are received by registered persons.
This is a relief for unregistered persons as in these situations, despite receiving reverse charge goods / services, they will not be required to pay tax under reverse charge and consequentially will not be required to obtain GST registration.
***
A BIG THANKS to you for visiting our site and reading this article. Kindly provide your feedback on the above article in comment section below. Also please intimate about other GST issues on which you would require our team to pen down articles.
Doubts on GST may be lodged on ‘Ask GST query tab‘ under ‘Your GST queries’ tab on home page. National level GST experts will provide their reply on the matter raised at the earliest and same can be seen under ‘GST query resolved’ tab under ‘Your GST queries’ tab.
You can also subscribe to our free newsletter to always be updated on GST Law by filling the subscription form at home page.
Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
