purchases from urd

[AIJAZ KAZI]

respected experts

can a composition dealer purchase from unregistered dealer and is rcm applicable for the same or not applicable

[Sadanand Bulbule]

Yes. They can purchase goods from URDs. They are also liable to pay tax under RCM in cash mode on such goods, which can not be used to set off OPT payable.

[Shilpi Jain]

Rcm is applicable only on notified procurements.

All procurements from URP is not liable under rcm.

Person constructing residential apartments liable under 5%, notified procurements liable under rcm for certain quantum of URP procurements. 

[YAGAY andSUN]

Great question — this relates to the interaction between composition scheme under GST and Reverse Charge Mechanism (RCM) under Section 9(4) of the CGST Act, 2017.

Let’s break it down:

✅ Can a Composition Dealer Purchase from an Unregistered Dealer (URD)?

👉 Yes, a composition dealercan purchase goods or services from an unregistered supplier.

📌 There is no restriction in the law that bars composition taxpayers from procuring from unregistered dealers.

⚖️ Is RCM Applicable on Purchases from Unregistered Dealers (Section 9(4))?

✅ As per current law:

RCM under Section 9(4) (i.e., purchase of goods/services from unregistered supplier) is NOT applicable to any person except in cases notified by the Government.

🔹 Current status (post-2018 amendment):

RCM under Section 9(4) applies only in specific casesnotified by the Government (like certain construction-related supplies to promoters).

For general B2B URD purchases — RCM is not applicable.

📘 Applicability to Composition Dealer:

✅ So, if a composition dealer purchases goods/services from an unregistered person, RCM under Section 9(4) does not apply, unless specifically notified.

🛑 Also note: Composition dealers cannot claim ITC, so even if RCM was applicable, ITC on such RCM would not be available to them.

🔖 Summary:

Particulars	Composition Dealer	Remarks
Can buy from URD?	✅ Yes	No restriction
RCM applicable on URD purchase?	❌ No (Section 9(4) RCM not generally applicable)	Unless notified
Can claim ITC on RCM?	❌ No	Composition scheme blocks ITC

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AI Summary

Reverse charge mechanism not generally applicable to purchases from unregistered suppliers; composition dealers may buy but can't claim ITC. Composition taxpayers may purchase from unregistered suppliers; purchases are not barred by the composition scheme. Reverse charge on procurements from unregistered persons is generally not applicable except for specific procurements notified by the government. Composition dealers cannot claim input tax credit, so any RCM liability (where notified) cannot be offset as ITC. A divergent reply notes RCM tax on such procurements may be required to be discharged in cash and not used to set off output tax.