In certain cases, the recipient is liable to pay tax, and the concept is termed as Reverse Charge Mechanism (RCM). Synchronizing the RCM subject, the writer will give the background of this mechanism, referring to relevant provisions of Central/State/ Integrated GST Acts. Then, a brief about criteria where RCM is applicable along with major domains operating under this regime shall be penned down. Lastly, sum up this article with some personal comments reflecting the future of RCM under GST.
Objective behind RCM
In some situations, creating liability on the supplier is not feasible; therefore, the government has reached to way out for this issue with the Reverse Charge (RC) tagline, which is often called 'RCM'. Using powers ‘Levy & Collection’ enumerated under section 9 of Central/State GST & 5 of Integrated GST Acts, depart frame the technique. The said provision Central Board of Indirect Taxes and Customs (CBIC) empowers to issue notification/circulars for clarification in the GST regime.
When RCM Operates
Mechanism of shifting forward charge to reverse charge works, where creating GST liability on recipients against any taxable services/goods is much easier than targeting the supplier. In such cases, RCM operates generally happened in two cases;
Compliance by Recipient in RCM
Under forward charge, the basic job of the recipient is to pay GST charged in the invoice issued by the supplier. However, when it comes to RCM, the recipient has to be on their toes in doing all the compliances the same as suppliers perform while paying GST. As a ready reckoner, the same is entailed as under:
1. Registration: If an entity is engaged in activity that falls under the frame of RCM then, the recipient has to take registration with the department and file returns duly;
2. Signifying GST Liability: As per the latest condition, every invoice should clarify its tax liability. Accordingly, if RC is applicable, then it has to be mentioned in the supplier’s invoice also;
3. Self-Invoicing: As explained in the case of an unregistered supplier, the recipient has to raise self-invoice reflecting details of the supplier’s invoice for depositing the applicable GST.
4. Books of Accounts: Created GST liability simultaneously attracts department search or investigation chances. Thus, maintenance of electronic ledgers with all the requirements has to be fulfilled;
5. Paying RCM: While paying GST under RCM, the recipient has to pay in cash as it can’t use its Input Tax Credit (ITC) for paying that applicable GST. However, later on, the discharged amount can be claimed as ITC if eligible;
6. Advance Payment: Like forward charge, RC must be discharged if the recipient is paying advance to the supplier.
Summing up the article, it may be noted that RCM is an evolving subject as most of the CBIC notification/clarification comes with new techniques for fighting the knot of GST over all the goods and services. Thus, RCM can’t remain untouched from this fleece of the GST regime.