Section 9 of CGST Act: GST Levy & Collection Explained with Forward and Reverse Charge Rules

Section 9 of CGST Act: GST Levy & Collection Explained with Forward and Reverse Charge Rules

The Central Goods and Services Tax (CGST) Act introduced a comprehensive framework for the levy and collection of tax on intra-State supplies of goods and/or services. Section 9 of this Act lays out the mechanism for the imposition of central GST and categorizes different charging methods. This article "Section 9 of CGST Act: GST Levy & Collection Explained with Forward and Reverse Charge Rules" explains the nuances of Section 9, the distinction between forward and reverse charge mechanisms, and relevant notifications that shape the application of the law.

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Introduction to Section 9

Section 9 of the CGST Act is critical in establishing the liability for the payment of GST. It defines which supplies are taxable, distinguishes exceptions, and sets the foundation for both forward and reverse charging mechanisms. The section thereby ensures that all intra-State supplies are subject to taxation—except certain exempt supplies such as alcoholic liquor for human consumption—and outlines how tax is collected at various points in the supply chain.

Forward Charge vs. Reverse Charge Mechanisms

Forward Charge

Under the forward charge system, the supplier, when making an intra-State supply of goods or services, collects the GST from the recipient. The supplier subsequently remits the entire amount (inclusive of the GST component) to the Government. Sections 9(1) and 9(2) provide the statutory basis for this mechanism:

• Section 9(1): Imposes tax on all intra-State supplies (with a notable exception for alcoholic liquor for human consumption) based on the valuation prescribed under Section 15 of the Act. The applicable rates typically do not exceed 20% (though in practice the combined tax rate may reach 40% when state portions are added).
• Section 9(2): Specifies that certain petroleum products and related fuels—such as petroleum crude, high-speed diesel, petrol, natural gas, and aviation turbine fuel—are subject to CGST from the date notified by the Government, based on recommendations from the GST Council. Although they are within the ambit of the Act, these items have not yet been taxed.

Reverse Charge

In contrast, under the reverse charge mechanism, the recipient—not the supplier—is liable to pay the GST directly to the Government. Reverse charging applies in specific situations, particularly when the supplier is unregistered or when the Government notifies certain categories of supplies:

• Section 9(3): Provides that the Government may identify specific categories of goods or services for which the GST liability falls on the recipient. This section lists various items ranging from agricultural products like unshelled cashew nuts to services provided by a Goods Transport Agency (GTA) or individual advocates.
• Section 9(4): Further refines the reverse charge mechanism by detailing the circumstances under which the recipient must pay tax when procuring taxable supplies from unregistered suppliers. Earlier, there was a monetary threshold exemption for such supplies, but this was rescinded and replaced by provisions under the Central Amendment Act, 2018.
• Section 9(5): Introduces a special provision wherein the Government may require the electronic commerce operator to pay GST on certain categories of services supplied through its platform rather than passing the tax liability to the supplier. Examples include the transportation of passengers by radio-taxi services and accommodation services provided through online platforms.

Detailed Explanation of Key Sub-Sections

Section 9(1) – Levy on Intra-State Supplies

• Taxable Supplies: All supplies of goods and services within a state are subject to the levy except for items explicitly excluded (for instance, alcoholic liquor for human consumption).
• Rate and Payment: The tax is charged on the value determined under Section 15 of the Act at rates not exceeding 20% (which, when combined with State GST, may total up to 40%).
• Exclusions: Specific items (like alcoholic liquor) are beyond the scope of the CGST Act.

Section 9(2) – Levy on Specified Petroleum Products

• This sub-section mandates that certain petroleum products and fuel items be covered under CGST from a specified date notified by the Government.
• Although these items fall under the provisions of the CGST Act, they are yet to be included within the taxable ambit.

Section 9(3) – Reverse Charge on Notified Supplies

• Notification-Based Liability: The Government may, following recommendations of the Council, notify lists of goods and services on which the reverse charge mechanism is applicable.
• Examples of Goods: Notified items include agricultural products such as unshelled cashew nuts, bidi wrapper leaves, and raw cotton. Additionally, categories like used vehicles or scrap materials are also notified.
• Examples of Services: Specific services include those provided by goods transport agencies (GTA), legal services (for example, advocates providing representation in courts), and even services by arbitrators, among others.
• Obligations: The recipient is treated as the taxpayer for these transactions, and all provisions applicable to regular tax-paying entities under the Act come into force for them.

Section 9(4) – Reverse Charge on Supplies from Unregistered Suppliers

• Earlier Provisions: Initially, the reverse charge on supplies from unregistered suppliers applied only when the total value of such supplies in a day did not exceed Rs. 5,000. This threshold exemption has since been withdrawn.
• Current Provision: Now, under the amended provision, whenever goods or services are supplied by an unregistered supplier to a registered recipient, the latter is liable to pay the GST. This change has been effected through amendments, notably via the Central Amendment Act, 2018.

• Notification of Specific Categories: The Government may further specify certain goods or services with this mode of liability through additional notifications.

Section 9(5) – E-commerce Operator Liability

• Liability Shift: Under this provision, the Government may notify that for certain services supplied via an electronic commerce operator, the operator becomes liable to pay GST rather than the supplier.
• Examples: Services such as passenger transportation by radio-taxi or motorcabs, and accommodation services in hotels or guest houses, are specified under this section.
• Additional Provisions: Special sub-clauses detail the steps required if the e-commerce operator lacks a physical presence or representative in the taxable territory, thereby mandating the appointment of a local entity for tax purposes.

Implications for Stakeholders

For Suppliers and Recipients

• Suppliers must collect and remit the applicable GST on all intra-State supplies under the forward charge unless notified otherwise.
• Recipients need to be aware of the reverse charge mechanism. In cases where they receive supplies from unregistered suppliers or from notified categories, they must calculate and pay the applicable GST directly to the Government.

For E-commerce Operators

• With the notification under Section 9(5), e-commerce operators are obligated to pay the tax for specific services facilitated through their platforms. This represents a significant shift from the traditional supplier-centric taxation model and requires adherence to the prescribed guidelines for tax remittance.

For Promoters and Specific Industries

• Certain provisions under the notifications (such as those affecting promoters receiving supplies for construction projects) have been laid down in detail. These notifications define the minimum values of supplies and the applicable tax rates, ensuring a uniform approach to taxation in complex supply chains.

5. Conclusion

Section 9 of CGST Act: GST Levy & Collection Explained with Forward and Reverse Charge Rules, the CGST Act establishes a dual structure for the levy and collection of GST through forward and reverse charge mechanisms. By prescribing which transactions are taxable—and by delineating the responsibilities of suppliers versus recipients—it plays a pivotal role in the GST framework. Moreover, the evolving notifications, including those concerning e-commerce and supplies from unregistered persons, underscore the dynamic nature of tax regulation under the Act.

Disclaimer: The information provided in this article is for informational purposes only. It does not constitute legal advice and should not be relied upon as such. Stakeholders are advised to consult the relevant provisions, updates, and professional advice before taking any action based on this overview.