Generally, the supplier of goods or services is liable to pay GST. However, in specified cases like imports and other notified supplies, the liability is cast on the recipient under the GST reverse charge mechanism, i.e. the liability to pay tax is on the recipient instead of the supplier of such goods or services in respect of notified imports/ supplies. There are two type of reverse charge scenarios provided in the GST law, as under:
i) First is dependent on the nature of supply and/ or nature of supplier. This scenario is covered by section 9(3) of the CGST/ SGST (UTGST) Act and section 5(3) of the IGST Act.
The Act provides that the Government may, on the recommendations of the 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.
ii) Second scenario is covered by section 9(4) of the CGST/SGST (UTGST) Act and section 5(4) of the IGST Act where taxable supplies by any unregistered person to a registered person is covered.
The Act provides that the 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.
Accordingly, whenever a registered person procures supplies from an unregistered supplier, he needs to pay GST on reverse charge basis. However, supplies where the aggregate value of such supplies of goods or services or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted.