Reverse Charge Machanism

According to my knowledge:

Service Tax is to be paid by service service receiver when it pays for the expenditure. as just payee party has been changed not the time. when service provider will receive the money, then in place of him/her we( service receiver) will pay to the government.

2. Is there any set-off available for the tax paid

ya, it will be input service for the service receiver and credit must be allowed. but while paying service tax for this service no credit can be used.

Thank you sir.

But I had a doubt.

The service tax we pays Is over and above 100% of the Expenditure amount. So it will be our Expenditure which we should charge to P&L A/c.

Further, It is our liability which we pay to the government. And on other hand if we take set off government will receive that much amount less. So one one hand government is receiving Money and other hand it is loosing money. So I am confused that set off can be taken or not.
 

look take a example

service charge: Rs. 1000

Service tax: @ 10.3: Rs. 103

this service tax is charged by service provider and paid to government, then service receiver will take the credit. is it OK

if liability to pay service tax is levied on service receiver and he is paying then why he should not be allowed to take credit?

so credit will be allowed. 

Import of Services

The statutory provisions use the words ‘Services provided from outside India and received in India’. However, generally, the tax is known as tax on ‘Import of Services’.

Section 66A(1) (effective from 18-4-2006) provides that where any service specified in section 65(105) of Finance Act, is,— (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply.

Exemption to individual receiving the service - First proviso to section 66A(1) states that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply.

When service provider has establishment at more than one places - Second proviso to section 66A(1) states that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. Thus, even if a service provider has office in India as well as in foreign country, the service will be treated as provided from foreign country, if service is provided from that country.

Two permanent establishments to be treated as two separate persons - As per section 66A(2), where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section.

Intention seems only to tax services received in India - Though section 66A is broadly worded and covers even services provided and consumed abroad, it appears that intention is to tax only services received in India. If so, then only possible objection can be violation of DTA.

Service provided from outside India and received in India -  Though scope of section 66A is wide, it can be argued that service tax is payable only if the service falls within the definition of ‘Service provided from Outside India and Received in India’.

Classification of services - The rules classify all taxable services in four categories, namely (i) Services in relation to immovable property – the property should be situated in India – rule 3(i)  (ii) Services should be at least partly performed in India [rule 3(ii)] (iii) Services received by recipient located in India [rule 3(iii)] (iv) Services which will never be treated as import of service. The classification is same as per export of Service Rules.

Service receiver liable to pay service tax - As per rule 2(1)(d)(iv) of Service tax Rules, person liable for paying the service tax means - in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service.

Thus, person receiving service in India will be liable to pay service tax. He will have to register under Service tax provisions and submit returns. Service receiver was made liable to pay service tax on services provided by non-resident by amending rules on 16-8-2002. In cases prior to that, it was held that service receiver cannot be made liable to pay service tax in case of services provided by non-resident.

Tax to be paid in cash without Cenvat credit - Rule 5 of Taxation of Services (Provided from outside India and Received in India) Rules, 2006 clarifies that the taxable service will not be treated as output service of the recipient for purpose of availing of Cenvat credit of duty of excise paid on inputs or service tax paid on any input services. Thus, the recipient of service has to pay the service tax in cash by TR-6/GAR-7 challan. He cannot utilise his Cenvat credit for payment of this amount, as it is not his ‘output service’, though he is liable to pay service tax.

Service receiver avail Cenvat credit of service tax paid by him - Though the person receiving the service is liable to pay service tax, the service is his ‘input service’. Para 4.2-13 of MF(DR) circular No. B1/4/2006-TRU, dated 19-4-2006 confirms as follows ‘Where such service is used as an input for providing any taxable output, the service tax paid on such service can be taken as input credit’ (The TRU letters have not been withdrawn even when all other circulars have been withdrawn on 23-8-2007. Hence, TRU letters are still valid) [There is some controversy on this issue]

Thank you Sir and thanks a lot Mukund- Abhishek

What you have observed that on one hand you pay and on the other you avail the credit is true that it seems pointless. However all the importers of services would not be paying the service tax or central excise duty ( non taxable services, exepmted product manufacturers// traders) and therefore the mechanism exists.

To simplfy the same an exemption could have been provided when the manufactures/ service provider who pays ST are exempted.