Arjuna (Fictional Character): Krishna, from various peculiar provisions of GST the provision of RCM comes. According to this RCM provision what will happen if purchases are made from unregistered person?
Krishna (Fictional Character): Arjuna, The provision of reverse charge is already in service tax and the same provision is brought in GST. In service tax there are only specified persons who were required to pay tax on reverse charge basis but in GST all the persons are required to pay tax on reverse charge on purchase of goods and services.
Arjuna: Krishna, What is meant by R.C.M?
Krishna: Arjuna, R.C.M means reverse charge mechanism which means that tax on purchase of goods or services has to be paid by the recipient. In simpler terms R.C.M means paying tax of the other person. Which transaction will be covered in RCM has been specified.
Arjuna: Krishna, What if a taxpayer purchases goods or services from an unregistered person?
Krishna: Arjuna, if a registered person purchases goods or services from an unregistered person then the registered person has to pay tax on such purchases. For Ex. If a registered person purchases Tea from an unregistered person and if such expenses are accounted in the books of account then the registered person has to pay tax on such payment. Everyday a businessman incurs various transactions with unregistered person, now because of R.C.M the registered dealers has to pay tax on such purchase. Composition Dealers are also required to pay tax on reverse charge on purchases from an unregistered person. Further the dealer have to give the details of purchases from unregistered person in the monthly return.
Arjuna: Krishna, what will be the time of supply in case purchase of goods in Reverse charge mechanism?
Krishna: Arjuna, The time of supply for purchase of goods in reverse charge mechanism will be the earlier of the following- The date of receipt of goods or Date on which payment is made or The date immediately following 30 days from the date of issue of invoice.
For Ex. If a taxpayer purchases stationary from an unregistered person on 25th July 2017 and he provides the bill for the same on 2nd August 2017 and if the consideration is paid on 28th August 2017, then according to the provisions of RCM the time of supply will be 25th July 2017.
Arjuna: Krishna, what will be the time of supply in case of services in Reverse charge mechanism?
Krishna: Arjuna, The time of supply for services in reverse charge mechanism will be the earlier of the following- The date on which payment is made The date immediately following 60 days from the date of issue of invoice
Arjuna: Krishna, whether credit of GST paid in RCM will be allowed? Krishna: Arjuna, Every taxpayer can avail credit of tax paid on Reverse charge mechanism but he has to pay tax first then he can avail credit on such purchase in the next month. As per the provisions of GST credit cannot be availed on food and beverages, building, passenger vehicle even if tax is paid on R.C.M basis that means the burden of such tax shall be borne by the taxpayer. For Ex- If a businessman has purchased food beverages of Rs. 20,000/- from unregistered person and paid GST in RCM of Rs. 2,400 then credit shall not be available on such goods and Rs. 2400/- will be added to the cost of the businessman.
Arjuna: Krishna, what one should learn from the provisions of reverse charge mechanism of GST?
Krishna: Arjuna, because of this provision in GST the number of registered persons will increase. Purchase from an unregistered person can prove costly for any registered person. Every person has to look at his expense side of profit and loss account every month and has check if there are purchases from any unregistered person because that will attract reverse charge. Hence business has to be done very carefully, in case of any mistake interest and penalty will have to be paid on such purchase. The provisions of RCM will affect drastically on small traders, service providers like Plumber, repairs maintenance person etc.
CA Umesh Sharma