In our earlier post, we explained Time of Supply for Goods on Forward Charge. In this post, we have attempted to explain the case of a Time of Supply for Goods under Reverse Charge.
What is Reverse Charge Mechanism?
The government has introduced the Reverse Charge mechanism in India to ensure that the tax is duly collected on the sale of goods/ services from various unorganized sectors — increase tax compliance and tax revenues. Under this mechanism, the recipient of goods/ services is liable to pay the tax on goods/ services received to the credit of the Government unlike forward charge, where the supplier has to pay the tax. Some services to which the reverse charge mechanism is applicable include goods transport agency services, legal services, rent-a-car services, manpower supply services, import of taxable services, security services, etc.
The time of supply on Goods under reverse charge shall be the earliest of the following dates:-
- The date of receipt of goods
- The date on which payment is made. The earliest of the date on which the payment is accounted for in the books of accounts of the recipient or the date on which the payment is credited to his bank account
- The date immediately after 30 days from the date of issue of invoice by the supplier
If it is not possible to determine the time of supply under the a/b/c mentioned above, then the time of supply shall be the date of entry in the books of account of the recipient. For clause (b)- the date of payment shall be earlier of the date on which the recipient entered the payment in his books, or the date on which the payment is debited from his bank account
Let us understand this better with an example:-
1 Date of receipt of goods 15th May 2018
2 Date of payment 15th July 2018
3 Date of invoice 1st June 2018
4 Date of entry in books of receiver 18th May 2018
Time of supply of goods 15th May 2018
Incase the time of supply couldn’t be determined due to some reason under 1, 2 or 3 points mentioned above, then it would be the date of entry i.e. 18th May 2018.
Pre-GST, reverse charge was not applicable on goods except in a few states like Punjab, which had a purchase tax on certain goods. Now under GST, there will be a reverse charge on goods as well. Businesses who are required to pay tax under reverse charge have to register for GST, regardless of the threshold.