What is RCM Liability Under GST Section 9(3)?
Various supplies under section 9(3) would have been notified where the tax is liable to get paid via the receiver under RCM. This article attempts to analyze the application of RCM to the purchase of goods from vendors whose turnover is below the registration requirement.
Let’s say that I am a GST-registered business owner. I obtain a service covered by Notification No. 13/2017-CTR from a supplier whose annual revenue is under 20 lakhs, such as legal counsel from a lawyer. The point is whether I have to pay RCM for the service I received.
According to tax experts, RCM (Reverse Charge Mechanism) is not applicable since the service provider’s turnover is below the threshold limit and no tax is thus imposed at all on that service. The issue of payment under RCM doesn’t arise if tax isn’t imposed in the first place.
Such arguments do not look to be suitable in the statutory GST framework. Tax is levied through Section 9. Section 9(1) reads as follows:
“(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.”
What is GST Section 9?
In general, Section 9 contains two limbs. For the purposes of this debate, other clauses relating to exceptions, valuation, tax rates, and collection methods are not pertinent. The first leg specifies how much tax should be charged, and the second specifies who is responsible for paying that tax.
Therefore, if a tax is to be required, it must first be established that it is owed under the first limb and then it must be established that the person from whom the demand is made is a taxable person.
Please take note that the charge applies to all supplies from the first limb. The law doesn’t tie turnover to tax collection. However, a prescription has been made on “who should pay the tax levied?” regarding turnover.
Turnover Limit Under RCM Under GST Section 9(3)
Persons who are registered or who are required to be registered are considered taxable persons. If a supplier’s turnover exceeds a threshold amount (either 10 Lakhs, 20 lakhs, or 40 lakhs) or if the taxpayer is subject to Section 24, then the liability to register results would emerge.
Regarding supplies that are subjected to RCM, the second limb of the levying provision ‘who is needed to file the charged tax?’ gets overridden by Section 9(3) or Section 9(4). Section 9(3) reads as under.
“(3) The Government may, on the recommendations of the GST Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such 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 the supply of such goods or services or both”
Through the aforesaid provision, two things would have been understood. First section 9(3) does not charge the tax however merely shifts the liability to file the tax from the supplier to the receiver. The second would be that there is a certain prescription that the provisions of the act will get tested as when the receiver would be the individual who is obligated to file the tax.
Provided the aforesaid that the same would be simpler to reach an answer to our question. If there would be a charge on the supply when the turnover of the supplier would be lower compared to the limit? It is true that there would be a levy. As the levy (the first limb) does not link with any limit, there would be a levy on all the supplies whatever the turnover.
Whether the tax imposed is needed to get paid? Yes. The receiver is obligated to pay.
The duty to pay arises as long as the receiver qualifies as a ‘taxable person’ – being a registered person or being liable for GST registration. When Section 9(3) expressly states that the provision of the Act must be treated as if the receiver is the person responsible to pay tax, the phrase “shall be paid by the taxable person” in Section 9(1) must be examined from the recipient’s perspective, not the supplier’s.
We would be in a better position to comprehend the aforementioned reasoning if we compare the structure of GST tax and collection with the framework of levy and collection under central excise legislation. According to Central Excise Law, a tax was levied on “manufacture,” but the money was collected after the product was “removed” from the plant.
Read Also: GST Invoice & Payment Voucher in Reverse Charge Mechanism of CGST Act
Therefore, there was a tax on all manufacturers, but it wasn’t paid until the removal took place. The GST situation is the same. A tax is applied to all suppliers. You need not pay it if you do not meet the requirements to be a taxable person, but you must pay it if you are.
If your turnover falls below the threshold for the Forward Charge, you are exempt from paying it—not because there is no charge, but rather because you are not a taxable person. In the event of RCM, the receiver must pay it as long as they are taxable.
Under the previous service tax system, the legal position was the same. Income below 10 lakhs was exempt for service providers vide Notification No. 33/2012- Service Tax. However, services eligible for the reverse charge mechanism were exempt separately.
Because the GST is implemented in place of service tax, until a common provision is brought in for a different treatment, there are no grounds why a separate solution should be adopted.
On the above facts, it is compliant that a registered recipient will be subject to pay RCM on supplies dealt by Section 9(3) regardless of the income of the supplier.
Opinions and personal views or additional points regarding the matter will be appreciated.
Dear sir, refer to your analysis on section 9(1) & 9(3) of the GST Act, 2017, wherein it was concluded that regardless of turnover limit of supplier who is not registered under GST, the recipient is liable to pay tax. In this regard i need clarification as to, when charging section 9(1) itself fails to levy tax on supply because of turnover limit is less than threshold limit, where is the levy of tax under RCM. RCM only shifts the person not the levy. the expression “All the provisions of this Act shall apply to such recipient as if he is the person liable to paying the tax in relation to such supply” becomes irrelevant and section 9(3) overrides section 9(1) which is not the intent of law. More section 9(3) or 9(4) does not contain non-obstante clause. Further section 9(1) only contain saving of sub-section (2). If there is no levy there cannot be levy of tax under RCM also.