STUDY MATERIAL- C

Reverse Charge
Meaning

Normally GST liability is to be discharged by taxable supplier of goods and services.

But, in some cases GST is to be paid by the recipient of goods or services or both instead of the
supplier of goods or services or both. This is called as reverse charge. Wherever the supply
transactions are subject to reverse charge the provisions of GST Acts apply to the recipient of
supply as if he is the supplier.

Supply liable for reverse charge

The government can notify the specific supplies which are to be taxed under reverse charge
basis. This is because certain provisions of CGST, SGST and IGST Acts empower the government
to do so, wherever necessary. Accordingly the Government has notified services like Advocate
services, Goods transport agency services, Insurance agent services, Import of services etc.

In case of receipt of supply of goods or services or both by a registered person from

unregistered supplier GST will be payable by the recipient on reverse charge basis in respect of
specified categories of goods and services as may be notified by the government.

Summary of important points

When GST is payable under reverse charge, it should be paid by cash i.e., through Electronic
Cash Ledger. GST under reverse charge cannot be paid by using ITC i.e., it cannot be paid
through Electronic Credit Ledger.

GST paid under reverse charge is actually tax on inputs and hence the payer of tax can avail ITC
of reverse charge liability. He can avail the ITC on services only after making payment of that tax
in his Electronic Cash Ledger.

A registered person who is liable to pay tax on reverse charge basis shall issue an invoice in
respect of goods or services received by him on the date of receipt of goods or services from
the supplier who is not registered under GST.

Following goods are covered under reverse charge-

1. Cashew nuts, bidi wrapper leaves, tobacco leaves, silk yarn and raw cotton supplied by
agriculturist-registered person receiving goods will be liable
 2. In case of supply of lottery by state government, lottery distributor or selling agent is
liable
3. In case priority sector lending certificate received by any registered person, the recipient
is liable to pay tax
4. In case of used vehicles, seized and confiscated goods, old and used goods, waste and
scrap supplied by central government, state government, union territory, or a local
authority the registered person receiving the supply is liable to pay tax under reverse
charge.

NOTE:

1) Services which are subject to reverse charge have been specified in Notification
Nos.13/2017-CT(Rates) and 10/2017-IT (Rates) both dated 28-6-2017, effective from1-
7-2017. The list in CGST notification has nine items. List in IGST notification has two
additional items-(a)Import of services and (b) Inward ocean transport. These are not
included in CGST notification as only IGST is applicable on these two activities.
2) Students are informed to ascertain other details concerning reverse charge from books
and Acts.

Numerical treatment

Illustration:

An insurance agent in Assam is entitled to receive commission of Rs. 9,00,000 from

insurance company in Assam in the financial year2017-18.He is claiming exemption as his
aggregate turnover is less than Rs. 10 lakhs, as applicable in North-Eastern States. Discuss
tax liability.

Solution:

In case of services of insurance agent, the insurance company is liable to pay tax under
reverse charge. In case of reverse charge payment of tax threshold exemption of Rs. 10 lakh
or Rs. 20 lakh, as the case may be is not applicable. Hence the insurance company is liable
to pay tax @ 18% on Rs. 9,00,000. Hence, the GST liability works out to - CGST @ 9% - Rs.
81,000 and SGST @9% - Rs. 81,000.