Is Reverse Charge Transaction Covered Under E-Invoicing?

Introduction

E-Invoicing has been implemented in India in a phased manner since 1st October 2020. Let us discuss whether it applies to transactions that fall under the ambit of the Reverse charge mechanism under GST. This article aims to provide a comprehensive understanding of the applicability of e-invoicing on Reverse charge Mechanism (RCM) transactions.

Reverse charge Mechanism (RCM)

Under the Goods and Services Tax (GST), the supplier of goods and services is normally liable to pay the tax. However, under the Reverse charge Mechanism, the recipient of goods and services is liable to pay GST instead of the supplier. This could be because the supplier is not a registered person under GST law, or the supplier falls in the category of service providers notified by the government, or any other reason. Hence, the recipient of supplies pays the GST on behalf of the supplier to the government and reports the same in his GST returns.

Reverse charge is applicable in the following cases:

• Reverse charge under Section 9(3) of the CGST Act

Section 9(3) of the CGST Act allows the government, on the recommendations of the GST Council, to specify categories of supply of goods or services or both, where the tax shall be paid on a Reverse charge basis by the recipient. This means that the liability to pay tax is on the recipient of the supply of goods or services instead of the supplier.

The government has notified certain goods and services under Section 9(3) of the CGST Act for which the tax shall be paid on a Reverse charge basis.

• Reverse charge under Section 9(4) of the CGST Act

Section 9(4) of the CGST Act provides that the tax on 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 a Reverse charge basis. This means that if a vendor who is not registered under GST supplies goods to a person who is registered under GST, then the GST will have to be paid directly by the receiver instead of the supplier

Requirement of Issuing Tax Invoice in case of RCM Transactions-

The applicability to issue Tax Invoice stems from Section 31 of the CGST Act, 2017 extracts of which are reproduced as under-

“Section 31. Tax invoice.

(1) A Registered person supplying taxable goods shall, before or at the time of,—

(a) removal of goods for supply to the recipient, where the supply involves movement of goods; or

(b) delivery of goods or making available thereof to the recipient, in any other case,

issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars as may be prescribed.

(2) A Registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed”

Be it a transaction of Reverse Charge of Forward the supply continues to remain a Taxable supply hence the it is imperative to issue a Tax Invoice.

E-Invoicing Applicability to RCM Transactions

Before we delve into the discussion of e-invoicing for RCM transactions, let’s understand the applicability of the e-invoicing system. E-Invoicing was implemented in India in a phased manner from 1st October 2020 for companies having turnover higher than Rs.500 crore in any financial year from FY 2017-18 onwards. As of now, the scope is limited to transactions covering outward B2B supplies (i.e., supplies from the registered taxpayer to registered counter-party), Export, Deemed Export, Supplies to SEZ and transaction through E-commerce operator. Here’s a date wise list regarding applicability of E-Invoice-

NOTIFIED Annual Aggregate turnover (AATO) WITH DATES

Since even in RCM Transactions supplier is required to issue tax invoice the provisions of E-Invoice under Rule 48(4) gets attracted, extracts of which is reproduced as under-

“(4) The invoice shall be prepared by such class of Registered persons as may be notified by the Government, on the recommendations of the Council, by including such particulars contained in FORM GST INV-01 after obtaining an Invoice Reference Number by uploading information contained therein on the Common Goods and Services Tax Electronic Portal in such manner and subject to such conditions and restrictions as may be specified in the notification.”

From the above it can be concluded that E-Invoice is to be issue even in cases of RCM Transactions, but since E-Invoice is to be issued in case of supplies made to registered persons, there exists no requirement for issue of E-Invoice in case of B2C supplies.

Conclusion

In conclusion, e-Invoicing applies to transactions that fall under the ambit of the Reverse charge mechanism under GST. However, when a GST-registered person receives taxable supplies from an unregistered person, u/s 9 (4) of CGST Act, 2017, such a registered person has to pay GST on a Reverse charge basis. However, this transaction is not covered under e-Invoicing.