Reverse charge

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 January 2013 The service provider is covered under reverse charge mechanism and thus the service recipient is liable to pay service tax.

What is the treatment of the service tax paid by the service provider in the course of business?? As he wont be able to take credit for the same as he is not liable to pay service tax to the government.

CA CS Amit S. Kedia

CA CS Amit S. Kedia (Expert)
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01 January 2013 If the service tax is to be paid by recipient then there is no treatment required in the books of service provider in relation to service tax.

Querist : Anonymous

Querist : Anonymous (Querist)

01 January 2013 The query is not regarding the treatment in books of accounts..
what about the service tax paid by the provider of service on the input service??

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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22 July 2025 Great follow-up question!

Here’s the clear treatment of service tax on input services for a service provider whose output service is covered under Reverse Charge Mechanism (RCM):

Situation Recap:
The service provider supplies a service that is under RCM.

So, the service recipient (buyer) pays the service tax directly to the government.

The service provider still incurs service tax on inputs or input services (like rent, electricity, consultancy) used to provide the output service.

Key Points on Input Service Tax Credit:
Service provider can take Input Tax Credit (ITC) on service tax paid on input services
— because they have actually paid service tax on those inputs.

However, the output service provided by them is taxed under RCM and paid by the recipient
— so they do not collect service tax on output and cannot pay service tax on output.

Can the service provider avail ITC on inputs?

Yes, because ITC is allowed on input services used in providing taxable services.

The fact that output tax is paid by recipient under RCM does not bar the provider from claiming ITC on input services.

Accounting treatment summary:
Description Treatment for Service Provider
Service tax paid on input services Eligible for ITC and can be adjusted against output tax liability or carried forward
Service tax on output service Paid by service recipient under RCM; provider does not pay this tax
Impact on provider’s books Records input service tax paid as ITC; no output service tax liability

Example to clarify:
Provider buys consultancy service and pays service tax ₹10,000 on that input service.

Provides manpower supply service which is under RCM.

Recipient pays service tax directly to the government on output service.

Provider can claim the ₹10,000 as ITC on input services.

Reference:
Circulars and clarifications issued by CBIC (Central Board of Indirect Taxes and Customs) confirm that service providers whose output is under RCM can still avail credit on input services.

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