When does reverse charge mechanism apply under GST and who must pay tax

Question

I received a supply from an unregistered person and someone told me I have to pay GST myself, so I want to understand when this applies. I have been reading conflicting things online and I would like to understand what Indian law actually says about this, which Act and Section applies, what the realistic timelines and costs are, and what I should be doing right now to protect my position. If the matter can be resolved without litigation I would prefer that route, but I want to know what my rights are before I agree to anything or sign any document.

MyVakeel Legal Desk · Accepted Answer

When does reverse charge mechanism apply under GST and who must pay tax is governed in India primarily by Central Goods and Services Tax Act, 2017, Section 9(3), Central Goods and Services Tax Act, 2017, Section 9(4) and Integrated Goods and Services Tax Act, 2017, Section 5. The short answer is set out below, followed by the practical steps most people in this situation need to take. Read it alongside the specific provisions named, because the exact relief available to you turns on the facts you can prove on paper.

Under Section 9(3), the government notifies specified categories of goods and services, such as legal services from an advocate, goods transport agency services, and services by a director to a company, where the recipient rather than the supplier is liable to pay GST under reverse charge.

Section 9(4) covers reverse charge on supplies received from unregistered persons in notified categories, historically applicable broadly but now largely restricted to specified promoters receiving construction inputs and services from unregistered suppliers.

A registered person paying tax under reverse charge must self-invoice, pay the tax in cash through the electronic cash ledger, and can simultaneously claim input tax credit of the same amount if the inward supply is used for business, subject to Section 16 conditions.

Failure to discharge reverse charge liability attracts interest under Section 50 and penalty, and the recipient cannot use the supplier's non-registration as a defence since the statutory liability rests squarely on the recipient in notified cases.

What to do next: 1) Identify whether the supply falls under a notified reverse charge category; 2) Self-invoice and calculate tax at the applicable rate; 3) Deposit tax in cash and report it in GSTR-3B; 4) Claim eligible input tax credit in the same return period.

If the other side has already issued a notice, filed a case or set a deadline, treat the matter as time-sensitive — most remedies under Central Goods and Services Tax Act, 2017, Section 9(3) carry limitation periods, and a delay you cannot explain weakens an otherwise strong case. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in this practice area.