Reverse charge mechanism (RCM) is a mechanism in which the liability to pay tax rests on the Service/Goods recipient & not on the Service/Goods provider as contrary to Normal Tax regime.
As per S. 9(4) of the CGST Act, 2017 (Act), RCM is applicable on the goods or services or both received by a registered person from an unregistered person. So, the registered person was liable to pay tax on all the supplies received by him from an unregistered supplier. However, the applicability of RCM on registered person was exempted till 30th September, 2019.
Before Amendment S. 9(4) of the Act, was as follows:
‘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.’
From the above, it can be observed that the implication of the above section was wide.
This provision is substituted by CGST (Amendment) Act, 2018. This amendment is effective from 01.02.2019. The substituted provision is as below:
‘The Government may, on recommendations of the Council, by notification, specify the 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 tax on reverse charge basis as a 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’.
From the above new provision it can be concluded that
Hence, earlier all the supplies of goods or services were covered under RCM but now it is restricted in both terms specified registered person & specified goods & services. But the government has not yet notified any class of persons & class of goods or services.