Service tax

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Deven (Querist)
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17 December 2013 dear All, we are registered co. in Goa India, but wholly owned subsidiary by UK co. we have given a contract to supply security to a proprietor firm and who is charging us 25% of service tax . since we are owned by uk co. are we liable to pay balance 75% of service tax under RCM.

Deven

Deven (Querist)
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17 December 2013 please solve my query

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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24 July 2025 Yes, you are liable to pay the balance 75% of the Service Tax under Reverse Charge Mechanism (RCM) — even though you are a wholly owned subsidiary of a UK company — as long as you are located in India and receiving taxable services.

Here’s a detailed explanation based on the Service Tax law as of December 2013:

🔍 Applicable Service: Security Services
The service provided by a proprietorship firm (your contractor) is classified as “security service” (under manpower supply).

As per Notification No. 30/2012-ST dated 20.06.2012, Reverse Charge Mechanism (RCM) applies to manpower/supply/security services when the service provider is a non-corporate (like a proprietor) and the service receiver is a body corporate (such as a private limited company).

✅ Reverse Charge Ratio (As of Dec 2013):
For security services:

Party Type Liability (%)
Service Provider Proprietor 25%
Service Receiver Pvt Ltd Co. (you) 75%

Thus, if your contractor (a proprietor) charges 25% of service tax on invoice, you (as a private limited company) must pay the remaining 75% to the government under reverse charge.

🔗 Subsidiary of UK Company – Does It Matter?
Being a wholly owned subsidiary of a UK entity has no effect on your Service Tax liability under Indian law if the services are being received in India, and you are registered in India.

🧾 Example:
Security bill value = ₹1,00,000

Total Service Tax @12.36% = ₹12,360

Contractor charges 25% = ₹3,090

You are liable to deposit 75% = ₹9,270 under RCM through GAR-7 Challan.

💡 Can You Claim CENVAT Credit?
Yes, you can claim CENVAT credit of the service tax you pay under RCM if the security services are used for providing output taxable services or manufacturing.

Use GAR-7 challan as proof

Book the liability and claim credit in your CENVAT register

✅ Action Steps:
Deposit the 75% ST liability via GAR-7 Challan (online through NSDL)

Record both 25% charged by vendor and 75% paid under RCM in your accounts

Claim CENVAT credit if eligible

Report both payments correctly in ST-3 return

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