As we are already aware of the fact that the taxable supplies of goods and services attract GST and generally the supplier of taxable goods and service is liable to pay GST. This phenomenon is known as the ‘Forward Charge’ or direct charge, wherein  the supplier of goods or services or both generally collects tax from the recipient (buyer/ customer of such goods or service or both) and deposit with the Government ex-chequer either by utilizing the Input Tax Credit (ITC) or through cash ledger.

For instance, if a chartered accountant provides a service to his client, GST will be payable by the supplier of services, i.e., by a chartered accountant. Or for instance, if a car dealer sells car to a customer / buyer and collects GST on it, the supplier of goods, i.e., a car dealer is mandated to remit the same to the Government.

Under the GST regime, most transactions are covered under the forward charge mechanism. However, in some cases, the liability to pay GST lies with the recipient of goods or services or both,  instead of the supplier of such goods or services or both. This concept is duly known as the Reverse Charge Mechanism (“RCM”). Such liability under the RCM is absolute in nature, where the recipient cannot be absolved from his liability. In this case, all the provisions of the law shall apply  to such recipient as if he is the person liable to pay GST in relation to the supply of such goods or  services or both. A person who is required to pay tax under Reverse Charge has to compulsorily register under GST and the threshold limit is not applicable to such a person.

Legal provisions with regard to payment of GST under RCM

Power to levy GST on recipient under Reverse Charge arrives from Section 9(3) of the CGST Act, 2017 / SGST Act, 2017 and Section 5(3) of the IGST Act, 2017 which also specifies the categories of supply of goods or services or both, on which GST shall be paid on Reverse Charge basis by the recipient of such goods or services or both.

Time of Supply of Goods and services in case of RCM

(i)        Time of Supply of Goods – Earliest of the following,

• date of receipt of goods;
• date on which payment is made;
• date immediately following thirty days from the date of issue of invoice by the supplier.

(ii)       Time of Supply of Services – Earlier of the following:

• date on which payment is made; or
• date immediately following sixty days from the date of issue of invoice by the supplier.

Note: In case, it is not possible to determine the time of supply as per the foregoing provisions, then the time of supply shall be the date of entry in the books of accounts of the recipient of such supply.

Key Points

(i)        RCM liability has to be discharged through cash ledger only as ITC credit cannot be utilised for discharging GST liability by the recipient of goods / services under RCM;

(ii)       ITC of GST paid under RCM is admissible to the taxable person (i.e., the recipient of goods / service who had paid GST under RCM) provided such supplies are used in the course or furtherance of business;

(iii)      The recipient paying GST under RCM is not liable to reverse the ITC of GST paid despite payment against value of supplies is not made to the supplier of goods / services;

(iv)      GST paid under RCM through cash ledger is an admissible ITC and can be utilised for discharging GST liability against output supplies of same month in which it is paid. In other words, credit can be immediately availed in GSTR 3B.