Bearing of the service tax liability
This query is : Resolved
13 July 2015
Hi,
The service in question is under the purview of reverse charge mechanism as per the service tax laws where the service provider is non resident and receiver is a resident.
The Rule 3 of POP Rules, 2012 is applicable here.
The service tax is normally borne by the service receiver but in this case the contract between the parties specifies that the contract price includes all applicable taxes (direct and indirect).
Quote:
"all charges quoted are inclusive of applicable taxes. Supplier will account to the appropriate authorities for ‘its’ income tax, applicable indirect taxes, any applicable statutory contributions and all other applicable taxes, liabilities, charges and duties."
Unquote:
So, in this case would I gross-up the contract value and do a reverse calculation to arrive at the service tax figure or the service receiver would still bear the service tax liability?
Please help.
Thank yoou
The service in question is under the purview of reverse charge mechanism as per the service tax laws where the service provider is non resident and receiver is a resident.
The Rule 3 of POP Rules, 2012 is applicable here.
The service tax is normally borne by the service receiver but in this case the contract between the parties specifies that the contract price includes all applicable taxes (direct and indirect).
Quote:
"all charges quoted are inclusive of applicable taxes. Supplier will account to the appropriate authorities for ‘its’ income tax, applicable indirect taxes, any applicable statutory contributions and all other applicable taxes, liabilities, charges and duties."
Unquote:
So, in this case would I gross-up the contract value and do a reverse calculation to arrive at the service tax figure or the service receiver would still bear the service tax liability?
Please help.
Thank yoou
13 July 2015
Yes gross up the contract value and do reverse calculation to arrive at the service tax. Service receiver is liable to pay service tax under RCM but it can be adjusted against payments as per contract terms.
13 July 2015
Thank you sir for your reply,
Is there some case law or legal pronouncement substantiating the grossing up?
Thank you
Is there some case law or legal pronouncement substantiating the grossing up?
Thank you
13 July 2015
It is as per your agreement terms. No problem it will stand before the law. Such is the practice followed by others in case of inclusive contracts.
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