28 May 2015
Normally, service tax is payable by person providing the service.
¨ Section 68(2) makes provision for reverse charge i.e. making person receiving the service liable to pay tax.
¨ Provision can be made that part of tax will be paid by service receiver and part by service provider.
¨ Provisions relating to reverse charge are contained in Notification No. 30/2012-ST dated 20-6-2012.
8.2 Issues relating to reverse charge ¨ The small service provider exemption of ` 10 lakhs not available when tax is payable under reverse charge.
¨ Cenvat credit cannot be used to pay tax by service receiver. Service tax as to be paid by cash only i.e. GAR-7 challan.
¨ 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 service receiver and included in his return as he is liable to pay service tax.
¨ Service tax is payable by service receiver when actual payment is made to service provider and not on receipt of Invoice from service provider. However, if payment is not made to service provider within 6 months, service tax is anyway payable. Interest is also payable.
¨ Exception is that when service provider is outside India is Associated Enterprise (group company with at least 25% common interest), the service receiver is liable to pay service tax as soon as the account of service provider is credited in books of account of service receiver.
8.3 Billing by service provider
¨ Service provider should charge only his part of service tax
¨ Service receiver to pay service tax of his part by GAR-7 challan
¨ Service receiver liable for only his part and not 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..
8.4 Reverse charge with condition of non-availability of Cenvat
¨ In some services (e.g. GTA, renting or hire of motor vehicle designed to carry passengers), the abatement is subject to 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 case, Cenvat credit is not available. Hence, it is cost to company.
8.5 Business Entity and Body Corporate
¨ In some cases, reverse charge is applicable only when service receiver is business entity registered as ‘body corporate’.
¨ “Business entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession. Thus, Government, charitable organisation is not ‘business entity’.
¨ Body Corporate – Company, LLP, Cooperative Society is Body Corporate – Firm, HUF, Trust is not ‘Body Corporate’ [Society registered under Societies Act is legally not ‘body corporate’].
8.6 Reverse charge in works contract service
¨ 50% tax by service receiver if service provider of works contract service is individual, HUF, proprietary or partnership firm or AOP
¨ AND service receiver is business entity incorporated as body corporate.
¨ 50% service tax is payable by service provider and 50% by service receiver. The service receiver liable for 50% even if service provider does not charge service tax.
¨ Construction, Job work with material, AMC covered under works contract.
8.7 Reverse charge in case of manpower supply
¨ 75% tax by service receiver if service provider of manpower supply is individual, HUF, proprietary or partnership firm or AOP
¨ AND service receiver is company or business entity incorporated as body corporate. Balance 25% by service provider.
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