Reverse charge, where the recipient is liable to pay tax, is common to many countries like Canada where it is applicable on imports of services and intangible properties. Normally, the supplier pays the tax on supply. In certain cases, the receiver becomes liable to pay the tax, i.e., the chargeability gets reversed which is why it is called reverse charge.
1) under reverse charge mechanism only the buyer is the responsible person to pay the GST tax because the registration was not taken from the department by the seller
2)Here the buyer should not claim any input tax credit on his purchase because he did not paid it but GST will be collected from him on his sale
In reverse charge mechanism the buyer of the goods did not setoff any taxes from his output tax because he did not paid any tax on his purchase.
The entire amount of output tax liability has to paid to the GST DEPARTMENT
Example – Q) Ravi has purchased 10000 value of the goods from the dev and the GST rate is 10%(SUPPOSE). But the DEV was not registered with the GST department and ravi is selling these goods for 12000
Solution: ( under reverse charge mechanism)
Ravi did not paid any GST TAX that is 1000 (10000*10%) but from his sale he will collect 1200 GST TAX( 12000*10%)
Ravi should not claim any input tax of( 1000)because he did not paid it but he has to pay total amount of 1200 to the GST department.