RCM Provisions – Recent Developments

Indirect tax laws as transaction taxes are generally designed to be collected from the initiator/ originator of the transaction (say supplier / seller service provider). Reverse charge provisions (‘RCM’) flip this default rule and shift the tax liability onto the receiver of the supply. The provisions emerge from the ‘tax collection’ powers granted under Article 246A of the Constitution. Since the levy continues to be governed by the provisions of section 7, 9(1)/5(1), all levy parameters (such as supply, business, consideration, etc) must be independently satisfied as a prequel to the RCM provisions. This article revolves around this fundamental principle and decodes the recent legal developments in this light.

LEVY & SCOPE OF SUPPLY — SUPPLIER AND TAXABLE PERSON CONUNDRUM

Section 9 levies a tax on the transaction of ‘supply’ of goods or services and such tax is to be ‘collected in the manner prescribed’ and ‘paid by the taxable person’. Section 7 (except 7(1)(aa) and (b)) enumerates that supplies have to be ‘in the course of furtherance of business’. Undoubtedly, the sine-qua-non for an activity to be termed as supply u/s 7(1)(a) is it should meet the business test. Now the question arises on the application of this ‘business test’ — whether it should be applied at the supplier’s end or recipient’s end. To decide