RCM on purchases made from unregistered dealer

As per Section 9(4) of CGST Act 2017 and Section 5(4) of IGST Act 2017, if any registered person receives any goods or service from an unregistered person then the registered person is liable to pay the GST under RCM.

Relevant Section: Section 9(4) of CGST Act 2017 and Section 5(4) of IGST Act 2017

Relevant Section: Section 31(3) of CGST Act 2017 [Self Invoicing for taking ITC]

Relevant Notification: Notification No. 08/2017- Central Tax (Rate) dated 28/06/2017

Relevant Notification: Notification No. 38/2017- Central Tax (Rate) dated 13/10/2017

Relevant Notification: Notification No. 12/2018- Central Tax (Rate) dated 29/06/2018

Amendment in Act: CGST (Amendment) Act 2018 dated 29/08/2018 effective from 01/02/2019

Let us understand the events relevant to this article in chronological order:

01/07/2017: CGST Act, IGST Act and Notification No. 08/2017 – CGST (Rate) came into force. According to this Notification if the total sum of purchases made by a registered person from an unregistered person in one day exceeds Rs. 5000/- then he has to pay GST under RCM for such transactions for that day.

13/10/2017: Notification No. 38/2017 – CGST (Rate) came into force. According to this Notification the registered person in such cases shall not be required to pay GST under RCM u/s 9(4) of CGST Act 2017 and u/s 5(4) of IGST Act 2017 w.e.f. 13.10.2017 till 31.03.2018.

29/06/2018: Notification No. 12/2018 – CGST (Rate) came into force which further deferred the earlier notification till 30.09.2018.

29/08/2018: CGST (Amendment) Act 2018 replaced the old section 9(4) of CGST Act 2017. The new section states that:

“The Government may, on the recommendations of the Council, by notification, specify a 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 the tax on reverse charge basis as the 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.”