reverse charge mechanism

Hi Harsh*ta,

After 19.04.2006, Import of Rules has been inserted by Government. Read Rule 2(1)(d)(iv) itroduced w.e.f. 19.04.2006 with Section 66A of Finance Act, 1994 (i.e. Charge of Import of Services) itself saying the levy of Service Tax is on Service Provider and not on Service Receiver. Simply speaking, normally in Local Service Tax Liability, Service Tax is charged to Service Receiver but in case of Import of Service the same is leviable to Service Provider. So its called Reverse Charge Mechanisum.

Why?

Imagine a situation where Government has, for the purpose of collection obviously to go and find Service Receiver located outside India if Service Tax in case of Import is levied on him. Isnt it a tuff and uneconomical way of charging mechanisum? For an easy way of Recovery and collection, the same is charged to Person providing Service. Even Registration is also required to be taken by Service Provider.

Not a criticism but an unsolved area of Import of Service is from when such Services will be taxable whether post or pre-introduction of Insertion of Section 66A. There are different views of tribunals of different states.

Please read a few commentaries.

In cross border transactions with each nation wanting its pound of flesh ( taxes) these mechanisms are becoming necessary. It is difficult for all countries to agree to one common methdology since each is following its own method. That is the reason for a lot of confusion.

I did not get Gautam Joshi's view as under import of services, Service receiver is liablie to pay service tax. As per the Harsh*ta's query, if sombody receives management consultancy services abroad, from a management consultant in India, it would be export of service under Export of services rules 2006. In such case, after satisfying all the conditions mentioned in said rules, the management consultant can export the service without payment of service tax. Hence no service tax is payable on the exported services. The jurisdiction of Service tax department is restricted to territorial waters of India only and not beyond that. Under import of services, the place of consumption of services is material for charging purpose.

Hi Satish,

Rightly said that Harsh*ta did not ask about the Import of Service when she wrote .."managnent consultancy services received abroad" but surely she had a doubt on import of service as she asked about reverse charge mechanism in cross border transactions. So I tried to justify my views on import of services.

Hi Gautam, you are correct as far as reverse charge mechanism is concerned. Under Import of service rules, I believe, the receiver of services is liable to service tax on reverse charge basis and not the provider of service. You wrote that the provider of service & not the receiver of service is liable to service tax under import of service rules. This was the point where I did not get your view.

Hi Satish,

You are all correct. In the whole discussion in reply to Harsh*ta I wrongly mentioned the word Service Receiver in place of Service Provider. I apologise for the same to all.

I make it like this -

Import of Service - Service Receiver is liable.

In case of local liability - Service Provider is liable.

Hi Satish,

You rightly said that. I actually overlook that mistake.

Pls all members avoid my earlier reply in this regard and I make it simple for suh query -

For local liability - Service Provider is liable.

For Import of Service - Service Receiver is liable.

Apologies.

Dear Expert

i am working in hotel industry and we have to pay some tech fees to usa based company, i want to know that is there the applicablity of reverse charges mechanism.

and please also tell me how can we identify that when this charge applicable...

THis will help you to find out the ST applicable on reverse charge

1[66A. (1) Where any service specified in clause (105) of section 65 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:

Provided 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:

Provided further 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.

(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.