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Service Tax - Reverse Charge

CA Abhishek Malpani 
on 27 September 2013

LinkedIn


Reverse charge on service tax

Reverse Charge on Service Tax:

Under this scheme, service tax is payable by service recipient instead of service provider. Under this charge service receiver has to register himself under service tax. Further service receiver can not claim general exemption limit of 10 Lakh rupees. So he has to pay even on few rupees of service received.

It will be very harsh on service receiver end where he has received services falls under reverse charge for only few hundred rupees but due to it he has to register himself in service tax and have to file service tax return on prescribed interval. Moreover under service tax act Nil return is also mandatory and every registered person have to file half yearly return.

Applicability of Reverse Charge:

As per notification 30/2012- Service Tax, Reverse charge is applicable from 1st July 2012 (For few services, reverse charge is applicable before 1st July 2012).

Point of taxation in Reverse Charge:

Date of payment by service Recipient is Point of taxation (general rule): As per rule 7 of the point of Taxation Rules 2011(amended). In case where the service recipient is liable to pay tax, the point of taxation shall be the date of payment against such services.

If payment is not made with in six months(exception) :However , the said rule provides that in case the payment is not made with in 6 months from the date of invoice , then the point of taxation shall be determine , as the rule does not exist . Thus the point of in that case would be as per rule 3.

a. If the invoice is issued with in the period specified in rule 4A of service tax rules, 1994 (30days w.e.f 01.04.2012) from the date of completion of service: Date of issue of invoice or receipt of payment, which ever is earlier.

b.If invoice is not issued with in prescribed time: Date of completion of service or receipt of payment (payment date).

Registration of Service Tax:

Register for Service Tax: So from above now what you should do is that if you are receiving any of these services and fall under specified category of service receiver   then you must register your self for service tax.

Amend service tax registration: If you have already register under service tax act and receiving one of new service added under reverse charge then you have to add this specific service in your service tax registration certificate.

Is the reverse charge applicable on services provided and complete before 1st July 12 though payments were made after 1.7.2012?

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 espect of such services.

If the service provider is exempted being a SSI (turnover less than Rs 10 lakhs), how will the reverse charge mechanism work?

The liability of the service provider and service recipient are different and independent of each other. Thus in case the service provider is availing exemption owing to turnover being less than Rs 10 lakhs; he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is obliged to pay under the partial reverse charge mechanism.

Will the credit of tax paid by service receiver be available?

Yes. Credit will be available to service receiver of service tax paid under reverse charge expect service tax paid on Rent a cab service.

What if service provider charge service tax on whole invoice value instead of partial service tax?

In this case, service receiver has to discharge only that much of service tax which service provider is liable to charge.

How is the service recipient required to calculate his tax liability under partial reverse charge mechanism? How will the service recipient know which abatement or valuation option has been exercised by the service provider?

The service recipient would need to discharge liability only on the payments made by him. The invoice raised by the service provider would normally indicate the abatement taken or method of valuation used for arriving at the taxable value. However since the liability of the service provider and service recipient are different and independent of each other, the service recipient can independently avail or forgo abatement or choose a valuation option depending upon the ease, data available.

Whether Service Receiver can pay Service Tax by utilizing CENVAT Credit?

No. It is well clarified in Explanation to Rule 3(4) of Cenvat Credit Rules, 2004 provides that “Cenvat Credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.” Therefore, Service Receiver has to make payment of Service tax in cash.

How to Identify the status of Service tax Provider?

This can be verified from the PAN of the service provider and PAN is quoted on invoice of service provider, as Service Tax Registration number is PAN based. One has to see 4th letter of the Service tax registration no, for identifying the status of service provider.

Below table shows, what 4th Letter of PAN denote for –

If 4th Letter of PAN/ST Registration is

Status of Service Provider

P

Individual

H

HUF

F

Partnership Firm

C

Company

T

Trust

B

Body of Individual

A

Association of Person

L

Local Authority

G

Government

J

Judicial Artificial Person

Reverse Charge of service tax applicable on following services:

1. Insurance Business:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service (ANY)

Percentage of service tax payable by the person receiving the service (ANY)

1

In respect of  services  provided or agreed to be provided  by an insurance agent to any person carrying on insurance business

Nil

100%

2. Transport of Goods By Road:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

2

in respect of  services  provided or agreed to be provided  by a goods transport agency in respect of transportation  of goods by road

Nil

100%

 

Applicable only when service receiver is:

a)   any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

(b)  any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;(c)  any co-operative society established by or under any law;(d)  any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder;(e)  any body corporate established, by or under any law; or(f)  any partnership firm whether registered or not under any law including association of persons;

What if CHA charge Transportation cost as reimbursement?

As the consignee (buyer) on consignment note is buyer of goods and CHA is acting as pure agent & CHA is reimbursing the transportation cost from the buyer of goods, assesse is liable to pay service tax on transportation charge under reverse charge.

3. Sponsorship:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

3

in respect of  services  provided or agreed to be provided  by way of sponsorship

Nil

100%

 

Applicable only when service receiver is

1. Body Corporate

2. Partnership Firm

4. Arbitral Tribunal:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

4

in respect of  services  provided or agreed to be provided  by an arbitral tribunal

Nil

100%

Applicable only when service receiver is

Applicable only when service receiver is

Service receiver is a business entity having turnover more than Rs. 10 lacs in preceding financial year.

5. Advocate Service

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

5

in respect of  services  provided or agreed to be provided  by individual advocate or a firm of advocates by way of legal services

Nil

100%

Applicable only when service receiver is

Service receiver is a business entity having turnover more than Rs. 10 lacs in preceding financial year.

6. Service is provided by government or local authority:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

6

in respect of  services  provided or agreed to be provided  by Government or local authority by way of support services (SR: Business entity)

Nil

100%

 

Applicable only when service receiver is

Service receiver is a business entity.

Support services By Govt. or Local authority:

Section 65B (49) of Finance Act, 1994 provides the definition of ‘support services’. Support services in respect of which service tax is payable by business entity receiving such services from government or local authority are as under: 

(i) Infrastructural Support Services; 

(ii) Operational support Services; 

(iii) Administrative Support Services; 

(iv) Logistic Services; 

(v) Marketing Services; 

(vi) Advertisement Services; 

(vii) Promotion Services; 

(viii) Construction or Works Contract Services; 

(ix) Security; 

(x) Testing and Analysis 

(xi) Any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever.  

7.  Rent a cab Service:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

7

(a)   in respect of  services  provided or agreed to be provided  by way of renting of a  motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business

(b)   in respect of  services  provided or agreed to be provided  by way of renting of a  motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business

Nil

60%

100 %

40%

 

Applicable only when service PROVIDER is

1.   Individual

2.   Partnership firm (Register / un-registered)

3.   HUF AND

Applicable only when service RECEIVER is

1.  Company

2. Body corporate

8. Supply of Manpower or Security Service:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

8.

in respect of  services  provided or agreed to be provided  by way of supply of manpower or security service for any purpose

25%

75 %

Applicable only when service PROVIDER is:

1.   Individual

2.   Partnership firm (Register / un-registered)

3.   HUF AND

Applicable only when service RECEIVER is:

1. Company

2. Body corporate

9. Works Contract Service:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

9.

in respect of  services  provided or agreed to be provided  in service portion in execution  of works contract

50%

50%

Applicable only when service PROVIDER is

1. Individual

2. Partnership firm (Register / un-registered)

3. HUF AND

Applicable only when service RECEIVER is

1. Company

2. Body corporate

What is works contract?

Works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out Construction, Erection, Commissioning, Installation, Completion, Fitting out, Repair, Maintenance. Renovation, Alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property;

Major change in service tax on Works contract from 1st July 12 is that now movable property is also covered under works contracts.

Transfer of Property in good is leviable to tax as sale of goods: Second important part is that Transfer of property in goods is taxable under sales tax. If such transfer is not taxable under sales tax then contract is not covered under works contract.

Examples of works contract:

a. Annual Maintenance Contract

b. Housekeeping service

c. Repairs & Maintenance contract of movable property

10.  Import of service:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

10

in respect of  any taxable services  provided or agreed to be provided  by any person who is located in a non-taxable territory and received by any person located in the taxable territory (Import of Service)

Nil

100%

Applicable only when service PROVIDER is

1. Any

AND

Applicable only when service RECEIVER is

1.  Any

11. Directors

Table:

 Sl.No.

Description of a service

Percentage of  service tax payable by the person providing service

Percentage of service tax payable by the person receiving the service

11

provided or agreed to be provided by a director of a company to the said company (Inserted through notification 46-47/2012 dated 07/08/2012)

Nil

100%

However, services provided by director in employee-employer relationship do not attract reverse charge.

Whole time director & managing director are considered as employee of company so reverse charge will not be applicable.

Regards

CA Abhishek Malpani

Pune


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