Analysis of Section 9(4) : Reverse Charge Mechanism (RCM) under GST

Reverse Charge Mechanism (RCM) :

Reverse Charge is a mechanism under GST where the liability to pay tax is on the Recipient of the supply of goods or services instead of Supplier of the goods and services. The Recipient must be Registered under GST.

Normally, GST (Tax) is payable by the Supplier of Goods or Services but under RCM Recipient of Goods or Services is liable to pay GST (Tax).

RCM एक ऐसी प्रक्रिया/व्यवस्था है जिसमे Tax (GST) की देनदारी Goods/Services को खरीदने/लेने वाले (Recipient/Buyer) की होती है I

Normal Charge/Forward Charge/Direct Charge में – Supplier/Seller (Goods/Services बेचने वाला) हमसे माल/सेवा के Amount के अलावा हमसे Tax भी लेता है और उस Tax को Govt. के पास जमा करा देता है , लेकिन RCM के Case में Supplier/Seller (Goods/Services बेचने वाला) हमसे केवल माल/सेवा का Amount लेता है और Tax हमें (Recipient/Buyer) को देना होता है I

RCM की प्रक्रिया को ज्यादातर असंगठित व्यावसायिक क्षेत्र (un-organised Sectors) में लगाया जाता है ताकि :

> Govt. उन पर निगरानी रख सके और Tax की चोरी को रोका जा सके

> Organised Sectors को बढ़ावा मिले

In GST, there are two types of Reverse Charge Liability :

1.  Reverse Charge (RCM) under Section 9(3) CGST/SGST Act  and Section 5(3) of IGST Act : On Notified Goods and Services.

2. Reverse Charge (RCM) under Section 9(4) CGST/SGST Act and Section 5(4) of IGST Act : At the very beginning Section 9(4) of The Central Goods and Services Tax Act, 2017 was :

“If a Registered person purchases goods or services from an unregistered person, RCM will be applicable.”

There was an exemption from RCM liability U/S-9(4) if aggregate value of supplies (Purchases) from any or all the un-registered suppliers within a day doesn’t exceed Rs. 5000 (Five Thousand).

On 29^th August 2018 The CGST (Amendment) Act, 2018 (No. 31 Of 2018) was passed where the amendment of the Section was made through substitution of the whole section : –

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

So, from 1st February 2019, we got rid of Old Section 9(4) which was applicable :

> in each in every case of purchases from an unregistered person, and

> to all registered taxpayers.

And a fresh Section 9(4) was introduced from 1st February 2019 which was applicable :

> in purchases of specified goods from Unregistered person, and

> to Specified registered taxpayers only.

Note : New Section 9(4) as amended/introduced by the CGST (Amendment) Act, 2018 was applicable from 1st February 2019 but ” NO SPECIFIED GOODS AND SERVICES OR SPECIFIED REGISTERED PERSONS” were notified till 29th March 2019.”

On 29^th March, 2019 through Notification No. 07/2019- Central Tax (Rate), the Government notified that Section 9(4) will be applicable for “Promoters” only for the supplies namely –

Thus in the present scenario Section 9(4) is only applicable for the “Promoters” who are engaged in Supply of the above mentioned services, without any exemption limit.

“Project” shall mean a Real Estate Project (REP) or a Residential Real Estate Project (RREP);