Service tax reverse charge mechanism
This query is : Resolved
aakashgilda
(Querist)
29 April 2014
In case we get the invoice of purely labour charges from a subcontractor as subcontracting charges,i.e a material sent for some processing.
The party providing the service do not charge any service tax on it.and annual turnover with that party is around Rs.25,00,000.
In the above case Service tax reverse charge is applicable?
The party providing the service do not charge any service tax on it.and annual turnover with that party is around Rs.25,00,000.
In the above case Service tax reverse charge is applicable?
Vidya Jain
(Expert)
29 April 2014
Aakashji,
You are liable to service tax under reverse charge mechanism. It is independent whether they charge service tax or not.
In case you require further clarifications, feel free to get in touch
CA Vidya Jain
+919836144143
You are liable to service tax under reverse charge mechanism. It is independent whether they charge service tax or not.
In case you require further clarifications, feel free to get in touch
CA Vidya Jain
+919836144143
aakashgilda
(Querist)
29 April 2014
As the invoice received by my client,invoice contains the words that " Serice Tax is not applicable ".
And is there any Threshhold limit for applicability of Reverse Charge?
What to do in such case ?
And is there any Threshhold limit for applicability of Reverse Charge?
What to do in such case ?
29 April 2014
threshold limit avail only service provider.
up to limit is rs 10 00 000/-. not liability of stax.
first u collect s tax from ur main contractor and he will take cenvat credit and u pay
up to limit is rs 10 00 000/-. not liability of stax.
first u collect s tax from ur main contractor and he will take cenvat credit and u pay
30 April 2014
Hi
Please clarify whether the invoice raised by subcontractor is towards supply of manpower or is it towards jobwork charges for material sent?
Please clarify whether the invoice raised by subcontractor is towards supply of manpower or is it towards jobwork charges for material sent?
30 April 2014
invoice rise on manpower supply can pay tax 3.09%
in case of used material and labour = transfer of property right can rise invoice as a works contractors.
in case of used material and labour = transfer of property right can rise invoice as a works contractors.
aakashgilda
(Querist)
30 April 2014
Labour charges are for jobwork charges for the material sent.
aakashgilda
(Querist)
30 April 2014
@ Kumar Sir,
Please can you elaborate for the 1st reply u gave ?
Please can you elaborate for the 1st reply u gave ?
25 July 2025
Here’s the answer for your **service tax reverse charge question on subcontracting labour charges**:
---
### Facts Recap:
* You received an invoice for **pure labour charges** from a subcontractor.
* The subcontractor did **not charge any service tax**.
* The subcontractor's **annual turnover is about Rs. 25 lakh** (below Rs. 60 lakh threshold).
* Material was sent to the subcontractor for processing.
---
### Applicability of Reverse Charge Mechanism (RCM):
1. **Is the subcontractor liable to pay service tax?**
* If the subcontractor’s **aggregate turnover is less than Rs. 60 lakhs**, then **they are not liable to pay service tax** (small service provider exemption).
2. **Does RCM apply to the service receiver?**
* Under normal circumstances, **if the service provider is exempt due to turnover threshold, the service receiver is also NOT liable under reverse charge.**
* So if the subcontractor is not charging service tax because of turnover exemption, **you as service receiver are not liable to pay tax under reverse charge.**
3. **What if the subcontractor was liable?**
* If the subcontractor was liable to pay service tax but did not charge it, then **you as service receiver may be liable under RCM to pay service tax.**
4. **Material sent for processing**
* Service tax on works contract or subcontracting services is chargeable. But if the subcontractor is exempt due to turnover limit, then RCM will not trigger.
---
### Summary:
| Situation | Is Reverse Charge Applicable? |
| -------------------------------- | ------------------------------------------------ |
| Subcontractor turnover 60 lakh | RCM applies if service provider does not pay tax |
---
### Additional Notes:
* If the subcontractor does not charge service tax, and you are the service receiver, check if you fall under any other RCM provisions (like GTA services etc.) but generally for subcontracting labour services, the above applies.
---
**If you want, I can help you draft a clarification letter to your subcontractor or your accountant.** Would that help?
---
### Facts Recap:
* You received an invoice for **pure labour charges** from a subcontractor.
* The subcontractor did **not charge any service tax**.
* The subcontractor's **annual turnover is about Rs. 25 lakh** (below Rs. 60 lakh threshold).
* Material was sent to the subcontractor for processing.
---
### Applicability of Reverse Charge Mechanism (RCM):
1. **Is the subcontractor liable to pay service tax?**
* If the subcontractor’s **aggregate turnover is less than Rs. 60 lakhs**, then **they are not liable to pay service tax** (small service provider exemption).
2. **Does RCM apply to the service receiver?**
* Under normal circumstances, **if the service provider is exempt due to turnover threshold, the service receiver is also NOT liable under reverse charge.**
* So if the subcontractor is not charging service tax because of turnover exemption, **you as service receiver are not liable to pay tax under reverse charge.**
3. **What if the subcontractor was liable?**
* If the subcontractor was liable to pay service tax but did not charge it, then **you as service receiver may be liable under RCM to pay service tax.**
4. **Material sent for processing**
* Service tax on works contract or subcontracting services is chargeable. But if the subcontractor is exempt due to turnover limit, then RCM will not trigger.
---
### Summary:
| Situation | Is Reverse Charge Applicable? |
| -------------------------------- | ------------------------------------------------ |
| Subcontractor turnover 60 lakh | RCM applies if service provider does not pay tax |
---
### Additional Notes:
* If the subcontractor does not charge service tax, and you are the service receiver, check if you fall under any other RCM provisions (like GTA services etc.) but generally for subcontracting labour services, the above applies.
---
**If you want, I can help you draft a clarification letter to your subcontractor or your accountant.** Would that help?
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