Pay Tax in cash under reverse charge in GST because GST ITC can’t be claimed

By | May 16, 2017
(Last Updated On: May 16, 2017)

Output Tax under reverse charge in GST

Meaning of Reverse Charge under GST

As per Section 2(98) of CGST Act 2017

 “Reverse charge” means the liability to pay tax by the recipient of supply of goods or services or both instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or under sub-section (3) or sub-section (4) of section 5 of the Integrated Goods and Services Tax Act ;

Recipient of Goods or services Liable to pay Tax under Reverse Charge on Notified Goods/Services or on Purchases from Unregistered Persons

As per Section 9(3) and  9(4) of CGST Act 2017

(3) 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.

(4) The central 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.

As per Section 5(3) and  5(4) of IGST Act 2017

(3) 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.

(4) The integrated 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.

Input Tax Credit Can be used to pay Output Tax

As per Section 49 (2) and 49(4) of CGST Act 2017 :-

(2) The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41, to be maintained in such manner as may be prescribed.

(4)The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed.

Tax Payable under Reverse charge is not Output Tax

As per Section 2(82) of CGST Act 2017

 “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis;

Thus Input Tax credit can not be used to pay output Tax under Reverse Charge. It has to be paid in cash.

Payment of Tax under Reverse Charge in cash and taking Credit

After Payment of Tax under Reverse charge in  cash , Input tax credit can be taken to pay IGST, SGST and UTGST because tax paid under Reverse charge as per Section 9(3) and  9(4) of CGST Act 2017 and As per Section 5(3) and  5(4) of IGST Act 2017 is included in the definition of “ Input Tax ” (given below)  and “input tax credit” means the credit of input tax;

Further as per Section 49 (2) and 49(4) of CGST Act 2017 The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger . The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed.

As per Section 2(62) of CGST Act 2017

“input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

(d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

(e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,

but does not include the tax paid under the composition levy;

As per Section 2(63) of CGST Act 2017

 “input tax credit” means the credit of input tax;

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