Applicability of RCM on services received from unregistered dealer

[Archna Gupta]

Dear Experts,

Please clarify that if there is no minimum threshold limit on Inter state transactions for registration under GST then why there is a provision in Section 5(4) of IGST Act,2017 for liability under reverse charges on the receiver of taxable goods or services or both on inter state transactions if the same is supplied from unregistered dealer, meaning thereby that the supplier is prohibited to make inter state sale of taxable goods or services or both without registration under GST.

Looking forward to your help.

Best Regards

Archna Gupta

[KASTURI SETHI]

Pl. Go through my article on threshold exemption published in Article Section of TMI during July, 2017. I raised the same issue.

[MADAN RAHEJA]

Point raised by you is factually correct with no clear answer. Experts on GST may like to respond.

[KASTURI SETHI]

Answer or solution is to be given Govt. in the interest of very very small business. Strings attached with threshold exemption, must be removed. This is the solution other wise it is denial of threshold exemption. There are so many discrepancies to be rectified.

[Rajagopalan Ranganathan]

Madam,

According to Section 23 (1) of CGST Act, 2017 "the following persons shall not be liable to registration, namely:––

(a) any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act;

(b) an agriculturist, to the extent of supply of produce out of cultivation of land.

A dealer who has not taken registration on the ground that his turnover during previous financial year is below ₹ 20 lakhs is wholly exempted from payment of tax and if any registered person who procures goods from such unregistered dealer need not pay gst under reverse charge. If the Department insists on payment of gst then the provision giving exemption to a dealer whose turn over is below ₹ 20 lakhs then provision giving such exemption becomes otiose.

[MADAN RAHEJA]

No separate exemption notification has been issued either under CGST Act or IGST Act granting exemption from payment of GST based on value of clearances unlike specific SSI exemptions under erstwhile Central Excise and Service Tax law. The Acts are also silent on exemption from GST payment below any specified monetary limit. The threshold exemption of ₹ 20/10 lakh is by virtue of Section 22 of CGST Act wherein persons with aggregate turnover within aforesaid amounts are not required to take registration, thus going out of GST ambit. Inter-State suppliers are an exception to these provisions and by virtue of Section 24 of CGST Act, have to take compulsory registration and follow GST law by making inter-state supplies on payment of IGST. Thus Section 5(4) of IGST Act is indeed otiose.

[Archna Gupta]

So till the time we don't get any clarification from Government, should we deposit GST under RCM for inter state supply from unregistered dealer?

[MADAN RAHEJA]

If the supplier is unregistered on account of threshold, he cannot make inter-state supplies without getting registered and discharging IGST.

AI Summary

Clarification Needed on Reverse Charge Mechanism Applicability for Interstate Services from Unregistered Dealers Under Section 5(4) IGST Act A discussion on the applicability of reverse charge mechanism (RCM) under the GST framework, specifically for services received from unregistered dealers in interstate transactions. The query highlights a perceived contradiction in the GST Act, where suppliers are restricted from interstate sales without registration, yet Section 5(4) of the IGST Act imposes RCM liability on the receiver. Responses suggest that the government needs to address these inconsistencies, especially for small businesses. Some experts argue that the threshold exemption should remove RCM obligations, while others note the lack of specific exemption notifications for small-scale transactions. The discussion emphasizes the need for government clarification.