Service Recipients obligations under reverse charge

MOHAMMAD SALIM , Last updated: 16 October 2012
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The Ministry of Finance (Department of Revenue), Government of India has made certain changes and brought certain additional items of services under the ambit of reverse charge mechanism where the service recipient is liable to pay tax.

Till 30^th June, 2012 seven services were covered under the reverse charge mechanism. Now w.e.f 1^st July, 2012, three services have been deleted and certain new services have been added. After the changes, following services are covered under reverse charge mechanism from 1^st July, 2012 onwards as per Notification No. 30/ 2012- Service Tax Dated 20th June, 2012 read with Section 68(2) of the Finance Act, 1994 and Rule 2(1)(d) of the Service Tax Rules, 1994.

S.No	Nature of Service	Taxable Value (%)	% of service tax to be paid by recipient of service (i.e. PFC)
1.	Services provided by an insurance agent to any person carrying on insurance business.	100	100
2.	Services provided by a goods transport agency in respect of transportation of goods by road.	25	100
3.	Services provided by way of Sponsorship.	100	100
4.	Services provided by Arbitral Tribunal.	100	100
5.	Services provided by individual advocate or a firm of advocates by way of legal services.	100	100
6.	Support services provided by Government or local authorities excluding renting of immovable property, services of Department of Posts, services in relation to an aircraft or a vessel or transport of goods or passengers.	100	100
	Services provided by way of renting of a motor vehicle designed to carry passengers by any individual, HUF, Partnership firm including association of persons. on abated value on non-abated value.	40 100	100 40
	Services provided by way of supply of manpower for any purpose by any individual, HUF, Partnership firm including association of persons.	100	75
	Services provided in service portion in execution of works contract by any individual, HUF, Partnership firm including association of persons	100	5
	Any services provided by any person which is located in a non-taxable territory i.e. State of Jammu & Kashmir or out of India i.e Non-residents.	100	100

Further following two additional services have also been covered under reverse charge mechanism from 7th August, 2012 vide Notification No 45/ 2012- ST and 46/ 2012- ST dated 7th August, 2012.

11.	Payment of sitting fees and reimbursement of expenses etc. to non-executive Directors (including independent & Govt. nominee directors*.	100%
12.	Services provided by way of security services by any individual, HUF, Partnership firm including association of persons.	75%

The services listed at Sl. No 4 to 9, 10(if service is provided from J&K) and 11 & 12 are new services which brought under the ambit of reverse charge mechanism from 1^st July, 2012 and 7^th August, 2012 respectively. Out of these services at Sl No 7 to 9 and 12 are covered under partial reverse charge and in such cases the payment of service tax is to be made proportionately by service provider and service recipient.

* Sitting fees and reimbursement of expenses to Govt. nominees directors to be considered as support services of Govt. and thereby covered under reverse charge w.e.f. 1.7.2012.

Applicability of Reverse Charge on new services.

The service tax in respect of new services is to be paid by an entity directly to Govt. under reverse charge, only if the date of invoice OR date of completion of service,if invoice is not issued within 30 days (45 days if service provider is a banking co. or FI / NBFC) of such date OR date of payment whichever is earlier, falls after 30^th June, 2012 or 6^th August, 2012, as applicable

Practical Application:

I. In case the new taxable service has been received before 1^st July, 2012 (assuming services received during the month of June, 2012).

Sl. No		Tax payable by service recipient i.e PFC under reverse charge or not	Tax payable by PFC In case invoice not issued within specified time*
	Invoice has been raised as well as payment made on or after 1^st July, 2012	Yes	No
	Payment made upto 30^th June, 2012 but Invoice has been raised on or after 1^st July, 2012	No	No
	Invoice raised upto 30^th June, 2012 but payment made on or after 1^st July, 2012.	No	No
	Invoice has been raised as well as payment made upto 30^th June, 2012	No	No

*30 days from date of completion of service (45 days if service provider is a banking co. or FI / NBFC)

II. In case the new taxable service has been received on or after 1^st July, 2012.

Sl. No		Tax payable by service recipient i.e PFC under reverse charge or not
	Invoice has been raised as well as payment made prior to 1^st July, 2012	No
	Payment made upto 30^th June, 2012 but Invoice has been raised on or after 1^st July, 2012.	No
	Invoice raised upto 30^th June, 2012 but payment made in July, 2012.	No
	Invoice has been raised as well as payment made on or after 1^st July, 2012	Yes

Service Tax payable by service recipient

The Corporation will pay service tax in respect of services received,directly to Govt. to the extent shown in above table and not to the service provider irrespective of fact that service tax is charged in the bill or not.

Practical Application:

1) Bill dated 15^th July, 2012 is received towards manpower services of Rs 1,00,000/- Plus service tax @ 12.36% i.e. Rs 12,360/- . As the manpower services are covered under partial reverse charge mechanism,the Corporation will pay to service provider only Rs 1,00,000/- plus 25% of total service tax i.e. Rs 3090/- . The amount representing 75% of service tax i.e. Rs 9270/- would be paid directly by Corporation to the Govt.

2) If in above case Bill of only Rs 1,00,000/- is raised without service tax.In such case the Corporation will pay to service provider only Rs 1,00,000/-. The amount representing 75% of service tax i.e. Rs 9270/- would be paid directly by Corporation to the Govt.

Payment of service tax under reverse charge

As per Rule 6(1) of the Service Tax Rules, 1994, read with Rule 7 of the Point of Taxation Rules, 2011, the payment in respect of service tax is required to be made by 6^th day (for electronic deposition) of next month in which the payment towards the services received (covered under reverse charge) are made. However if in such cases payment is not made to service provider within six months of the date of invoice the due date will be deemed as 6^th of next month when the invoice was issued / date of completion of service if invoice is not issued within 30 days(45 days if service provider is a banking co. or FI / NBFC) from such date. In such an event interest would be payable for the delay from the deemed due date till deposition of service tax.

Cenvat Credit

As per Rule 6(3B) of the CENVAT Credit Rules, there is no Cenvat Credit available in respect of services at Sl No 7 & 9 (except in case of Works Contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods). In respect of other services the CENVAT credit is available to the extent of 50% of the service tax paid.

Hope you enjoyed the article.

Regards

CA MOHAMMAD SALIM

Email: msalimca@gmail.com