Reverse charge on service tax
This query is : Resolved
28 April 2014
A franchisee has provide service to company and issued invoice of Rs 100000 exclusive of service tax , and submits nil returns so now can the company is liable to pay service tax on the amount for which they recive service from franchisee.
What are tax implications and liability to both company and franchisee ? Does any CENVAT rule applicable here?
What are tax implications and liability to both company and franchisee ? Does any CENVAT rule applicable here?
13 May 2014
its like vodafone franchisee open in the city and on behalf of vodafone company providing service to customers?
22 July 2025
Here's a clear explanation regarding service tax reverse charge on franchisee services, based on your example:
Scenario:
Franchisee provides services to a company (like Vodafone).
Invoice amount: ₹1,00,000 (exclusive of service tax).
Franchisee submits nil service tax returns (i.e., not paying service tax).
Question: Is the company liable to pay service tax under reverse charge? What about CENVAT credit?
Relevant points:
Is Reverse Charge Mechanism (RCM) applicable on services from franchisee to franchisor?
Generally, services received from a franchisee are subject to RCM by the franchisor, if the franchisee is not paying service tax.
Under RCM, the service receiver (company) is liable to pay service tax on services received from unregistered service provider (the franchisee).
What about the franchisee submitting nil returns?
If the franchisee is not registered or not paying service tax, the company must pay service tax under RCM on the invoice value.
Tax liability of company:
The company must pay service tax on ₹1,00,000 (or applicable value) under reverse charge.
This amount must be deposited with the government and declared in service tax returns.
Tax liability of franchisee:
If registered, franchisee must pay service tax on services provided (unless exempt).
If not registered, no service tax payable by franchisee, but recipient (company) pays tax under RCM.
CENVAT Credit:
The company can avail CENVAT credit on the service tax paid under reverse charge, subject to normal CENVAT credit rules.
This helps avoid cascading effect and input tax credit chain.
Scenario:
Franchisee provides services to a company (like Vodafone).
Invoice amount: ₹1,00,000 (exclusive of service tax).
Franchisee submits nil service tax returns (i.e., not paying service tax).
Question: Is the company liable to pay service tax under reverse charge? What about CENVAT credit?
Relevant points:
Is Reverse Charge Mechanism (RCM) applicable on services from franchisee to franchisor?
Generally, services received from a franchisee are subject to RCM by the franchisor, if the franchisee is not paying service tax.
Under RCM, the service receiver (company) is liable to pay service tax on services received from unregistered service provider (the franchisee).
What about the franchisee submitting nil returns?
If the franchisee is not registered or not paying service tax, the company must pay service tax under RCM on the invoice value.
Tax liability of company:
The company must pay service tax on ₹1,00,000 (or applicable value) under reverse charge.
This amount must be deposited with the government and declared in service tax returns.
Tax liability of franchisee:
If registered, franchisee must pay service tax on services provided (unless exempt).
If not registered, no service tax payable by franchisee, but recipient (company) pays tax under RCM.
CENVAT Credit:
The company can avail CENVAT credit on the service tax paid under reverse charge, subject to normal CENVAT credit rules.
This helps avoid cascading effect and input tax credit chain.
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