How Can a Registered Dealer Purchase from an Interstate Unregistered Dealer Without Claiming GST in India?

India's Goods and Services Tax (GST) has brought about a significant transformation in the tax landscape, requiring careful understanding of the rules and processes for tax obligations. A registered dealer in India can purchase goods from an interstate unregistered dealer, but the treatment of GST (Goods and Services Tax) in such transactions depends on certain factors.

Reverse Charge Mechanism (RCM) and Its Application

When a registered dealer purchases goods from an unregistered dealer, the registered dealer is required to pay GST under the Reverse Charge Mechanism (RCM). This means the registered dealer must self-assess and pay the GST applicable on the purchase, even if the seller is unregistered. This process ensures that the tax liability is placed on the buyer instead of the seller, and it aligns with the broader objectives of the GST law.

Claiming Input Tax Credit (ITC) under RCM

A registered dealer can claim Input Tax Credit (ITC) on the GST paid under the RCM, provided that the goods purchased are used for business purposes and other eligibility criteria for claiming ITC are met. This allows the dealer to offset the input tax against the output tax, thereby reducing overall tax liability.

Interstate Transactions and GST Liability

For interstate purchases where goods are purchased from an unregistered dealer in another state, the registered dealer will be liable to pay Integrated Goods and Services Tax (IGST) under the Reverse Charge Mechanism (RCM). This means the registered dealer must calculate and pay the IGST applicable on the transaction.

Section 24 and Interstate Supplies

Under section 24 of the GST law, any person making an interstate TAXABLE supply, regardless of whether it is below or above the specified threshold limit, must get compulsorily registered. This implies that if a person intends to make an interstate supply of goods, they must be registered for GST, even if their domestic supplies are below the threshold limit of 20 Lakhs. As a result, interstate TAXABLE supplies are not possible if the inward supply is made from an unregistered dealer. However, interstate inward supply of exempted goods or nil-rated goods is permissible in such cases.

Compliance Burden on the Buyer

It is important to note that the compliance burden on the buyer, who must pay the GST under the Reverse Charge Mechanism, has been postponed until further notice. This means that although the current buyer's obligation to pay GST under RCM exists, it does not immediately impact all registered dealers.

For further clarification and official guidance, dealers are advised to consult the official GST website or seek assistance from Certified Public Accountants (CPAs) or GST experts.

Conclusion

In summary, a registered dealer can purchase from an interstate unregistered dealer, but they must account for and pay GST using the Reverse Charge Mechanism. This process ensures that tax is appropriately levied and collected, and registered dealers can potentially claim Input Tax Credit if they meet the eligibility criteria. Understanding these nuances of GST law is crucial for compliance and minimizing tax liabilities.