Bihar deputy chief minister, Sushil Modi, and a group of ministers (GoMs) have decided to send a recommendation to the GST Council to scrap a section in the GST Act that relates to reverse charge mechanism (RCM). The recommendation was based on the fact that the section discriminates against dealers who are not registered and does not offer any value-addition to the revenue.
Under the reverse charge mechanism rule, registered dealers will have to make tax payments if they are to receive goods from unregistered dealers. This measure is expected to keep a check on tax evasion. However, this mandate has been resisted by several registered small-scale businesses as the guideline is difficult to comply with when they purchase goods from dealers who are not in the ambit of the Goods and Services Tax (GST) regime.
From the time the GST regime has been implemented, RCM was put on hold. Recently, the suspension of RCM has been deferred till 30th September.
Sushil Modi mentioned that the GoMs have recommended to the GST Council that Section 9(4) should be omitted. Instead, a new section can be introduced that will allow the government (on the basis of the recommendation of the GST Council) to alert certain classes of registered entities of the goods that will be covered under the RCM mandate. This move will also ensure that the GST Council will not have to postpone the implementation of RCM each quarter. The Council will, hence, be able to identify the individual commodities for RCM instead of a class of dealers.
Another recommendation that will be put forth to the GST Council is to defer by 1 year the proposal to offer incentives to dealers who pay digitally under GST. The revenue impact in this case is seen to be in the range of Rs.9,000 to Rs.14,000 crore each year.
These recommendations are likely to be taken up by the GST Council in its next meeting scheduled for 21 July 2018.