Reverse charge mechanism

reverse charge is where the receiver of service is paying the proportionate or full amount of service tax to the government unlike in non reverse chage cases where the service provider is liable to pay the whole tax...

Illustration is mentioned below:

X is a Service Provider and Y is a Service Receiver such that they fall within the scope of reverse charge mechanism.

· The ratio applicable is 25% and 75% for the Service Provider & Receiver, respectively.

· An invoice of Rs. 15 lakhs (excluding tax) has been raised on 1st October, 2012.

For the given facts the computation of service tax shall be as under:

Particulars	Amount (in Rs.)
Invoice Value (excluding tax)	15,00,000/-
Service Tax @ 12.36% (A)	1,85,400/-
Total Value	16,85,400/-
Less: Tax attributable to Service Receiver and to be borne by him [75% of (A)]	1,39,050/-
Amount Payable by Service Receiver to Service Provider	15,46,350/-
Service Tax payable by Service Receiver	1,39,050/-
Service Tax payable by Service Provider	46,350/-

Raising service invoice

With reference to the example given above, while raising a service invoice, the total service tax payable of Rs. 1,85,400/- needs to be disclosed.

In addition to that, service tax attributable to the Service Receiver of Rs. 1,39,050/- shall be disclosed on the invoice so that the receiver knows the amount of service tax that is required to be paid by him.