Goods under reverse charge mechanism (RCM) in GST Law

The supply of goods subject to reverse charge mechanism (RCM) where the recipient is required pay GST, have been notified vide Notification No. 4/2017-Central Tax (Rate) dated 28-6-2017 (as amended ) under Section 9(3) of the CGST Act, 2017.

List of Goods subject to reverse charge mechanism (RCM) under GST law:

The list of notified goods on which GST is required to be paid under reverse charge is given below along with date from which reverse charge provisions are applicable on such goods. These goods are also notified for reverse charge under other GST Acts(s).

Brief discussion on some of the goods subject to RCM:

RCM on Purchase of goods from Agriculturist:

Out of eight goods wherein reverse charge is applicable on five goods , if purchased by registered person from an agriculturist. Thus it is important to understand the meaning of the word ‘Agriculturist’.

Meaning of Agriculturist:

As per Section 2(7) of the CGST Act,2017 ‘agriculturist’ means an individual or a Hindu Undivided Family who undertakes cultivation of land—

(a) by own labour, or
(b) by the labour of family, or
(c) by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal supervision of any member of the family.

It may be noted that no definition of term ‘agriculture’ has been given in GST law and definition of term ‘agriculturist’ is available. Normally , in commercial parlance, the word ‘agriculture is understood in a very wide manner to include post-harvesting operations also. Further agriculture should also cover Floriculture, Horticulture and Sericulture. However it does not include rearing of animals.

RCM on Supply of lottery tickets

‘Lottery tickets’, is actionable claim and is classified as ‘Goods’, under GST. However, an actionable claims other than lottery, betting and gambling has been kept outside scope of supply as per Schedule III of the CGST Act.

Hence, the sale of lottery tickets would be considered to be the supply of taxable goods and will attract GST.

Payment of GST under reverse charge:

In the case of lottery run by State Government, the tickets are sold by the State Government to lottery distributor /selling agent. The selling agent is required to pay tax under reverse charge.

Subsequently, when the selling agent supplies such tickets to sub-agent/ customer, no tax is required to be paid. The local sub-agent is also not required to pay any tax. Thus, a tax is levied at single – point under reverse charge in case of lottery run by State Government.

However, in the case of lottery authorised by State Government, the tax is to be paid under the forward charge by the lottery selling agent (i.e. Supplier). A tax must also be paid at each stage of supply.

Uniform rate of GST of 28% is applicable on all lotteries.

RCM on Priority Sector Lending Certificate (PSLC)

What is the Priority Sector Lending Certificate (PSLC)?

Priority Sector lending certificate (PSLCs) are tradable instruments issued as certificates against priority sector lending by banks. The certificates help banks to meet their lending goals specified for the priority sector. Buyers of PSLC are generally those banks who are not able to meet there required target of lending priority sector. Thus, banks moving ahead of their targets issues PSLC to non-achievers to balance the flow of lending and credit.

It may be noted here that these certificates are issued only between banks and the risk on account of credit made by over-performing banks, does not transfer with the issue of certificates to other banks.

The four specified types of PSLC include :

PSLC Agriculture: PSLC issued for agriculture sub lending target.

PSLC Micro Enterprises: PSLC issued for Micro-enterprises sub lending target

PSLC SF/MF: PSLC issued for Small and Marginal farmers sub lending target

PSLC General: PSLC issued for correspondingly balancing the overall lending target.

PSLCs issued by banks does not transfer any risk, loan assets, interest or any right,  hence,  PSLC does not fall under the definition of securities. They have an intrinsic value of their own and are to be taxed at normal rates like other taxable goods under GST.

Levy of GST on PSLC

As per CBIC Circular No.62/36/2018-GST dated 12.09.2018 clarified that GST on PSLCs starting from period 1.7.2017 to 27.05.2018 will be paid by the seller bank on a forward charge basis at the rate of 12%. Whereas from 28.05.2018 onwards, the charge would be paid by the buyer bank on reverse charge mechanism(“RCM”).

The trade of PSLCs among banks will be considered as an Inter-state supply, accordingly Integrated Tax (“IGST”) is payable on such transactions.

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Frah Saeed

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.