Analysis of RCM under GST in case of purchase of goods or service from unregistered dealer

The relevant sections and notification are produced below. Readers are advised to go through the examples which are given at the end after reading the bare section and notification for better understanding.

Assumption: For the sake of understanding, in this article we will refer Maharashtra Goods and Services Tax wherever SGST need to be compiled. The reader may refer their respective State GST for their reference.

Sub section (4) of section 9 of the Central Goods and Services Tax Act, 2017 is produced below:

The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient 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 the supply of such goods or services or both.

CGST Notification

The Notification exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the central tax leviable thereon under sub-section (4) of section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017):

Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.

Sub section (4) of section 9 of the Maharashtra Goods and Services Tax Act, 2017 is produced below:

The State tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient 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 the supply of such goods or services or both.

MGST Notification

The Notification exempts intra-State supplies of goods or services or both received by a registered person from any supplier, who is not registered, from the whole of the state tax leviable thereon under sub-section (4) of section 9 of the said Act:

Provided that the said exemption shall not be applicable where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.

Author’s Analysis

Let’s understand this provision with the help of examples.

URD Stationers is an unregistered supplier in Maharashtra and his turnover is less than Rs. 20 lakh.

RD Stationers is a GST registered supplier in Maharashtra.

GSTPL  is a private limited company registered under GST in Maharashtra.

Example 1- GSTPL purchased stationery of Rs. 5,500 from URD Stationers on 10th of July. GSTPL is required to pay GST on Rs. 5,500 under Reverse Charge Mechanism.

Example 2- GSTPL purchased stationery of Rs. 5,500 from RD Stationers on 10th of July. GSTPL is not required to pay GST under Reverse Charge Mechanism as RD Stationers is a registered dealer and he must have charged GST in his bill to GSTPL.

Example 3- GSTPL purchased stationery of Rs. 3,000 from URD Stationers and of Rs. 3,000 from RD Stationers on 10th of July. GSTPL is not required to pay GST under Reverse Charge Mechanism as it is eligible transaction for exemption under the Notification as the purchase from unregistered dealer is less than Rs. 5,000 in a day.

Example 4- GSTPL purchased stationery of Rs. 3,000 from URD Stationers and of Rs. 3,000 from another unregistered supplier in Maharashtra on 10th July. GSTPL is required to pay GST under Reverse Charge Mechanism on Rs. 6,000 as the said exemption shall not be applicable where the aggregate value of such supplies of goods received by GSTPL, a registered person from any or all the suppliers, who is or are not registered, exceeds five thousand rupees in a day.

Example 5- GSTPL is having one office in Andheri and one office in Thane. It purchased stationery of Rs. 3,000 at Andheri office from URD stationers and of Rs. 3,000 at Thane office from another unregistered supplier, both on 10th July. GSTPL is required to pay GST under Reverse Charge Mechanism on Rs. 6,000 as the said exemption shall not be applicable as aggregate value of such supplies exceeded Rs. 5,000.

Example 6- GSTPL is having one office in Mumbai and one office in Delhi. It purchased stationery of Rs. 3,000 at Mumbai office from URD Stationers and stationery of Rs. 3,000 at Delhi office from unregistered dealer, both on 10th July. As per author’s opinion GSTPL is required to pay GST under Reverse Charge Mechanism on Rs. 6,000 as the said exemption shall not be applicable as aggregate value of such supplies exceeded Rs. 5,000.

 

 

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