Under the GST framework, the levy and collection of tax are governed primarily under Chapter-III through Section 9 of the CGST Act, 2017 (and Section 5 of the IGST Act, 2017). By default, GST operates under the Forward Charge Mechanism (FCM), but in specific statutory exceptions, it operates under the Reverse Charge Mechanism (RCM).

Under the normal system of taxation — known as the Forward Charge Mechanism (FCM) — the supplier of goods or services charges GST on the invoice, collects it from the recipient, and deposits it with the government. This is how the overwhelming majority of transactions work.Reverse Charge Mechanism (RCM) reverses this responsibility: the recipient of the goods or services, not the supplier, becomes liable to calculate and pay the tax directly to the government. RCM exists in the law for two distinct situations, dealt with under two separate sub-sections of Section 9 of the CGST Act, 2017 — sub-section (3) and sub-section (4). These two provisions are often confused with each other, but they operate on entirely different logic, and understanding that difference is essential for both officers and taxpayers.

Section 9(3) — RCM by specific notification, regardless of registration status of supplierSection 9(3) of the CGST Act, 2017 reads: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.”This provision has stood unchanged since 2017. It empowers the government to pick specific categories of goods or services — regardless of whether the supplier is registered or not — and shift the tax burden to the recipient. Goods notified under this power appear in Notification No. 4/2017-Central Tax (Rate), dated 28 June 2017 (cashew nuts, tendu leaves, raw cotton, certain scrap sold by government entities, and similar items). Services notified under this power appear in Notification No. 13/2017-Central Tax (Rate), dated 28 June 2017, covering GTA services, legal services by advocates, services of an arbitral tribunal, sponsorship services, director’s services to a company, insurance and recovery agent services, security services, renting of motor vehicles, renting of residential dwelling to a registered person, and import of services, among others. This notification has been amended multiple times — notably by Notification 22/2019, Notification 29/2018, and Notification 5/2022-Central Tax (Rate).

Provision with a complicated historyThis is where the real story lies. Section 9(4), as it stood in the original CGST Act, 2017, read:“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.”

Notice how sweeping this was. Unlike Section 9(3), which targets specific notified goods/services, the original Section 9(4) covered every........

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