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Reverse Charge Mechanism

CHART OF SERVICE TAX PAYABLE UNDER REVERSE CHARGE MECHANISM

CONTENTS

CHART OF SERVICE TAX PAYABLE UNDER REVERSE CHARGE MECHANISM.. 1

Services by insurance agent to any person carrying on insurance business. 1

Services  of goods transport agency in respect of transportation  of goods by road. 1

Services  by way of sponsorship. 2

Services  of an arbitral tribunal 2

Services of advocates (individual/firm). 2

Support services by Government or local authority. 2

Renting of a  motor vehicle designed to carry passengers on abated value. 2

Renting of a  motor vehicle designed to carry passengers on non-abated value. 3

Supply of manpower for any purpose or security services. 3

Works contract. 3

Import of Service. 3

Services provided or agreed to be provided by a director of a company to said company.. 4

 

Scope:

Reverse Charge Mechanism applies in case of Services of an insurance agent to any person carrying on insurance business,  Services  of goods transport agency in respect of transportation  of goods by road, Services  by way of sponsorship , Services  of an arbitral tribunal Services of advocates (individual/firm), Services of directors of a company, Support services by Government or local authority, Import of Service, Renting of a  motor vehicle designed to carry passengers on abated value / non abated value, Supply of manpower for any purpose or security services &  Works contract.

Notification No - 30/2012 - ST dated 20/06/2012.

(Additional Reference :-

Section 68(2) of The Finance Act, 1994 - Payment of Service Tax.

Rule 2 (1)(d), The Service Tax Rules,1994 - Definition of Person liable to pay service tax.)

Sr. no

Description of Service

Explanation

Service Receiver

Service Provider

Services Recipient's Liability

Service Provider's Liability

Effective Date

1

Services by insurance agent to any person carrying on insurance business

Covered: Payment to insurance agents by insurance companies for their services.

Insurance Company

Insurance Agent

100%

-

01/07/2012, This was in effect even before finance act 2012.

2

Services  of goods transport agency in respect of transportation  of goods by road

Covered: Transportation of goods by road through a GTA which issues a consignment note, by whatever name called. Excluded: Courier, express cargo, Carriage of certain food/drink items, consignment upto Rs. 750/-.

Consignor or Consignee who is: (a) factory, society, registered dealer of excisable goods, body corporate, partnership firm, AOP and (b) who pays or is liable to pay freight

GTA

100%

-

01-Jul-12, This was in effect even before finance act 2012.

3

Services  by way of sponsorship

Covered: All sponsorships. Excluded: Advertisement/business promotion, certain sports related sponsorships.

Any Body Corporate or Partnership Firm located in the taxable territory

Any Person

100%

-

01-Jul-12, This was in effect even before finance act 2012.

4

Services  of an arbitral tribunal

Covered: Any payment for any service.

Business Entity

Arbitral Tribunal

100%

-

1-Jul-12

5

Services of advocates (individual/firm)

Covered: Advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.

Business Entity having turnover exceeding Rs. 10lakhs p.a., located in taxable territory

Individual Advocate or Advocate Firms

100%

-

1-Jul-12

6

Support services by Government or local authority

Covered: Services of police, fire, ambulance etc. Excluded: Renting of immovable property, services of Department of Posts by way of speed post, express parcel post, life insurance and agency services, services in relation to an aircraft or a vessel, transport of goods or passengers, municipal, public convenience and other public services like water supply, sanitation, solid waste management.

Business Entity located in taxable territory

Government or Local Authority

100%

-

1-Jul-12

7(a)

Renting of a  motor vehicle designed to carry passengers on abated value

If service provider is not availing input credit, 8(a) is applicable otherwise 8(b) is applicable.

 

Covered: Hiring passenger cars, cabs, buses etc. Excluded: Radio taxi, metered cab, three wheeler, auto rickshaw, stage carrier, contract carriage and packaged tour, public transport not predominantly for tourism purpose e.g. Meru cabs, bus having contract permit hired for transportation of employees.

Business Entity registered as body corporate located in taxable territory

Individual, HUF, Proprietary or partnership firm, AOP located in taxable territory

100%

-

1-Jul-12


 

7(b)

Renting of a  motor vehicle designed to carry passengers on non-abated value

Services covered Same as above

Business Entity registered as body corporate located in taxable territory

Individual, HUF, Proprietary or partnership firm, AOP located in taxable territory

40%

60%

1-Jul-12

8

Supply of manpower for any purpose or security services

Covered: Payment for services of the staff seconded/deputed with the company under an arrangement where the staff remains on the payroll of the original employer only, payment for services of staff (not on payroll of the recipient of service) supplied by an agent/person under an arrangement where it is placed operationally under the superintendence or control of the recipient of service (e.g. housekeeping staff supplied by manpower agency), all security/detective services. Excluded: Joint employment, outsourcing the activity/service itself e.g. outsourcing house-keeping work to an outside agency instead of getting the manpower supplied by an agent for house-keeping work.

Business Entity registered as body corporate located in taxable territory

Individual, HUF, Proprietary or partnership firm, AOP located in taxable territory

75%

25%

Manpower: 01-Jul-12, security services: 7-Aug-12

Notification no - 46/2012 ST dated 07/08/2012.

9

Works contract

Covered: Any contract involving the use of labour plus material on which VAT is leviable under any schedule of VAT Act on the material used in execution of works contract and such contract is for any new construction.

Business Entity registered as body corporate located in taxable territory

Individual, HUF, Proprietary or partnership firm, AOP located in taxable territory

 

50%

 

50%

 

 

1-Jul-12

10

Import of Service

Covered: Any payment for import of taxable services from any place outside India.

Located in taxable territory

Located in non-taxable territory

100%

-

01-Jul-12, This was in effect even before finance act 2012.

11

Services provided or agreed to be provided by a director of a company to said company.

 

Company

Director

100%

-

Notification no - 45/2012 ST dated 07/08/2012.

 

Notes-

1.    Explanation I (to the aforesaid Notification): The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification

 

2.    Explanation II (to the aforesaid Notification): In works contract services, where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service.

 

3.    Point of taxation under Reverse Charge Mechanism:

 

         Service provider:-

 

Point of taxation under reverse charge mechanism is date of payment to the service provider provided payment must happen within 6 months from the date of invoice otherwise point of taxation will be date of invoice. Invoice needs to be issued by the service provider within 30 days of completion of each event/service. If invoice is not issued within the specified time, point of taxation will be the date of completion of provision of service.

Provided further that in case of "associated enterprises", where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier.

For any service whose point of taxation has been determined and whole liability affixed before 1.7.2012 the new provisions will not apply. Merely because payments are being made after 1.7.2012 will not add any additional liability on the service receiver in respect of such services.

 

         Service Recipient:-

 

For Service recipient in terms of the Point of taxation Rules, it shall be the date when payment is made for the service.

 

4.    Liability and procedure of Service tax for Service Recipient:-

 

         Service tax under reverse charge is applicable irrespective of the fact whether service provider is liable to service tax or not.

         It has been clarified that the liability of the service provider and the service recipient are different and independent of each other. In the case of small service provider claiming exemption he shall not be obliged to pay tax. However, the service recipient shall have to pay service tax which he is required to pay under the partial reverse charge mechanism.

         It may happen that service recipient may not be providing any service at all. Therefore he might not have got registered. However under reverse charge mechanism the service recipient will be required to get discharge his service tax liability. For the said purpose he will be required to get registered. In fact, Section 69 requires a person in such a case to get registered.

         Service tax payment by service recipient is done in a same way as done by service provider this is in GAR 7 or by E- Payment.

         Service Recipient even has to file return once he gets registered.

         The service recipient cannot avail SSI exemption while discharging service tax liability under reverse charge in terms of Notification No. 33/2012- ST dated 20-06-2012.

         Cenvat credit cannot be used to pay tax by Service Receiver

         Once paid, Cenvat credit can be taken if otherwise it is his eligible 'input service'.

         Tax should be paid under service tax registration number of the service receiver.

 

5.    Works Contract.

 

         It is the responsibility of service recipient to determine whether particular works contract is leviable to VAT or not. Service recipient is liable under reverse charge mechanism even if service provider does not charge VAT in invoice if VAT is otherwise applicable.

         Provisions relating to works contract are applicable even if material is purchased from a separate person other than the person rendering services or under separate agreement or under separate invoice.

         Valuation = Gross amount charged in invoice by service provider (excluding taxes) plus fair market value of goods supplied by the service recipient used in execution of works contract (excluding taxes) less amount charged by service recipient from service provider in respect of goods supplied in relation to works contract.

 

6.    Billing & Payment of service Tax Liability:

 

         Service Provider should charge only his part of Service Tax in the Invoice

         Service Receiver is liable for only his part and not the entire amount, even if service provider does not charge his portion of service tax

         A statutory liability cannot be shifted by mutual agreement. If statutory liability is of service receiver, he alone is liable.

 

7.    Conditions for claiming abatement in certain cases:

 

         In case of some services (e.g. GTA, renting or hire of motor vehicle designed to carry passengers), the abatement is subject to the condition of non availment of Cenvat credit by service provider (not by service receiver)

         A certificate should be obtained from the service provider about non-availment of Cenvat credit

         Such certificate is not required in case of hire or renting of motor vehicle, but still advisable to get it

         In case of renting of motor vehicle, in most of the cases, Cenvat credit is not available. Hence, it is cost to company