RCM on supply from unregistered person

[Kaustubh Karandikar]

What is the consequence of, The Central Board of Indirect taxes & Customs(“CBIC”) has notified that Exemption from tax under ‘Reverse Charge Mechanism (RCM)’ under GST stands rescinded w.e.f. February 01, 2019 in respect of Intra-state Purchases of Goods and Services from Unregistered Dealers (of value upto ₹ 5,000 per day), in view of bringing into effect, the amendments (regarding RCM on supplies by unregistered persons) in the Amended CGST/ IGST/ UTGST Acts 2018. Consequently Notification No. 8/2017- Union Territory Tax (Rate), dated the 28th June, 2017, Notification No. 8/2017-Central Tax (Rate), dated the 28th June, 2017, and Notification No. 32/2017-Integrated Tax (Rate), dated the 13th October, 2017, have been rescinded. Is RCM re-introduced or otherwise?

[Spudarjunan S]

Dear Sir,

Even though the notification no.08/2017 has been rescinded through notification no.01/2019 C.T(R) dated 29th January 2019 w.e.f 01st February 2019, the RCM u/s 9(4) is not applicable based on the following basis:-

Notification no.2/2019 C.T dated 29th January 2019 notifies the CGST Amendment Act 2018 w.e.f. 01st February 2019 wherein the section 9(4) of CGST Act has been amended as follows:-

In section 9 of the principal Act, for sub-section (4), the following sub-section shall be substituted, namely:––

“(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of goods or services or both, 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 such supply of goods or services or both.”

By reading the section we can understand that the provisions of 9(4) is not applicable to all registered persons, goods and services. It is applicable only to selected categories of registered persons & Goods and services which has to be notified by the Government. So until the same is being notified the provisions will not get effective.

So at present 9(4) will not get effective from 01st February 2019.

[KASTURI SETHI]

Dear Sir,

Yes. Consequent upon rescinding of Notification No.8/17-C.T.(Rate), supply of goods and services from an unregistered person to registered person will be taxable from 1.2.19. However, Govt. will specify the category of goods or services to be taxed. Category of persons will also be specified as Section 9(4) of CGST Act has also been amended. In view of rescinding of Notification No.32/17-I.T.(Rate) vide Notification No. 1/19-I.T.(Rate) dated 29.1.19, Inter-State supply under Section 5(4) of IGST Act will also become taxable w.e.f. 1.2.19 after the goods and services are specified and registered persons are specified.

[YAGAY andSUN]

We endorse the views of our experts.

[Praveen Nair]

Dear Experts

With the existing notification rescinded and the new notification coming to force from 01.02.2019 and having not mentioned any details of specified registered person it is advised that the provision for RCM on unregistered person be made effective 01.02.2019 in your organization, irrespective of the type of registered person you are.

Regards/Pravin

[CASusheel Gupta]

As per amendment, govt needs to notify

1) Class of registered persons, who shall pay tax under RCM and

2) categories of goods or services.

In the absence of notification, RCM cannot be applied under 9(4)

Thanks and Regards

CA Susheel Gupta

AI Summary

Reverse charge liability requires government notification before applying to supplies from unregistered persons; recipients not automatically liable. The amendment conditions reverse charge liability on the Government notifying (i) classes of registered persons and (ii) specified categories of goods or services; until such notifications are issued, the reverse charge mechanism does not apply generally to supplies from unregistered persons to registered recipients, and analogous notification is required for inter state treatment under the integrated tax framework.