The Goods and Services Tax (GST) introduced by government on 1st of July 2017 defined in Article 366 (12A) of the Indian Constitution. The Goods and Services Tax (GST) regime offers such a composition scheme formed to ease tax compliance for low slab taxpayers. The scheme lets eligible business to pay tax at fixed rate, in their turnover. Allowing reduction of taxes and compliances burden. Its's very important to understand the implications of Reverse Change Mechanism (RCM) for business eligible under such scheme.

What is Reverse Charge Mechanism (RCM)?

Reverse Charge Mechanism under GST, where recipient of good or services is liable to pay, Reverse Charge Mechanism (RCM) shifts such responsibility of paying tax from supplier to recipient. Under reverse charge recipient must pay tax to government directly instead of supplier.

Reverse Charge Mechanism (RCM) is governed under section 9(3), 9(4) and 9(5) of Central GST and State GST, and also under sections 5(3), 5(4) and 5(5) of the Integrated GST Act.
Section 9(3) covers a list of good and service on which reverse charge mechanism (RCM) applies. Read as "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."

Section 9(4) covers transfer of good from an unregistered vendor to registered vendor. Read as "t the 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. Accordingly, wherever a registered person procures supplies from an unregistered supplier, he needs to pay GST on reverse charge basis. However, supplies where the aggregate value of such supplies of goods or service or both received by a registered person from any or all the unregistered suppliers is less than five thousand rupees in a day are exempted."

Section 9(5) covers services where e-commerce operator was used, such recipient of e-commerce service will be liable to pay GST. Read as "Electronic Commerce Operator (ECO) is required to pay tax on supply of services such as Passenger Transport Service, Accommodation services, Housekeeping Services & Restaurant Services, if such services are supplied through ECO"

Composition Scheme and RCM:

Business eligible and registered under the GST composition Scheme are generally not required to pay tax under RCM. This exemption helps in reducing the tax liability for low slab taxpayers. There some conditions to the exemption
 
Eligibility for Exemption:
The exemption from RCM is applicable to all registered person, even those under Composition Scheme. This lets composition dealer not liable to pay tax under RCM on inward supplies received from unregistered suppliers.

Conditions for Exemption:
This exemption is only applicable if the total value of such supplies from unregistered person is not more than INR5000 a day. If such value is more than the threshold. The composition dealer is liable to pay tax on the entire value of supply under RCM received from unregistered vendor.

Government Notifications:
The central government has issued notification to exempt intra state supplies of good and service received or purchased from any unregistered vendor or dealer. With a daily limit of INR 5000 a day, mentioned under section 11 (1) of CGST ACT, 2017, read as " Where the Government is satisfied that it is necessary in the public interest so to do, it may, on the recommendations of the Council, by notification, exempt generally, either absolutely or subject to such conditions as may be specified therein, goods or services or both of any specified description from the whole or any part of the tax leviable thereon with effect from such date as may be specified in such notification.".

• Ancient origins
  • Aristotle: In the 4th century BCE, Aristotle described the three branches of government as the general assembly, public officials, and judiciary.
  • Ancient Roman Republic: The Roman Republic followed a similar concept to Aristotle's.
     
• Modern origins
  • Charles de Montesquieu: In 1748, Montesquieu published The Spirit of Laws, which is considered the foundation of modern legal theory. Montesquieu argued that separating powers was the most effective way to protect liberty.
  • John Locke: Locke studied the English constitutional system and deduced that dividing political power was advantageous.
     
• United States Constitution
  • Article I: Grants powers to the legislature.
  • Article II: Gives executive power to the President.
  • Article III: Creates an independent judiciary.

Conclusion
The exemption for Reverse Charge Mechanism (RCM) for companies under the GST Composition Scheme is a significant relief in terms of compliance and outflows of taxes for low slab taxpayer.

By exempting composition dealers for payment of RCM for inward supplies received from unregistered dealers. Up to a value of INR 5000 per day. By this government enables small companies to operate with ease free of undue financial burden. Companies must comply with utmost care with such terms and conditions, maintain books, and file statements under GST laws. Understanding of such provisions is significant for companies in terms of minimizing outflows of taxes and compliance with GST legislation.