Reverse charge is a mechanism under the Goods and Services Tax (GST) that requires the recipient of goods or services to pay the tax instead of the supplier. It is applicable in cases where the supplier is not registered under the GST or has a turnover below the threshold limit.
One of the most common questions that arise in the context of reverse charge is whether it is applicable on works contract under GST. In this article, we will attempt to answer this question in detail.
Works contract refers to any contract that involves the supply of goods and services for the construction, repair, renovation, or maintenance of a building or structure. The GST law has a specific provision for works contract, which is covered under section 2(119) of the CGST Act.
According to this provision, works contract is considered to be a supply of services, and is therefore subject to GST. The tax liability on works contract is generally borne by the supplier, who is required to pay the tax to the government.
However, in certain cases, the liability to pay GST on works contract may be shifted to the recipient under the reverse charge mechanism. This is applicable in two situations:
1. If the supplier of works contract is not registered under the GST, the recipient is required to pay the tax under reverse charge.
2. If the supplier of works contract is registered under the GST, but has opted to pay tax under the composition scheme, the recipient is required to pay the tax under reverse charge.
It is important to note that the reverse charge mechanism is not applicable on all types of works contracts. It is applicable only on certain specified works contracts, which are listed under Notification No. 13/2017-Central Tax (Rate).
As per this notification, the following types of works contracts are subject to reverse charge under GST:
1. Works contract services provided by an individual, HUF, or partnership firm to a registered person.
2. Works contract services provided by a sub-contractor to the main contractor for the construction of residential complex or non-residential complex.
3. Works contract services provided by a goods transport agency to a registered person for transportation of goods.
It is important for businesses to be aware of these provisions regarding reverse charge on works contract under GST, as failure to comply with the same can lead to penalties and other legal consequences.
In conclusion, reverse charge is applicable on works contract under GST in certain specified situations, as mentioned above. Businesses engaged in works contract services should ensure that they are aware of these provisions and comply with the same to avoid any legal issues in the future.