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Reverse charge mechanism applicabilty

ARINDAM (Manager Internal Audit) (167 Points)

12 September 2013

We are the company we are taking services from sole proprietor or partnership firm those are not issuing tax invoices i.e they are not liable to pay service tax( not crossing the limit 10lakh) so in that case whether we are liable to pay service tax under the reverse charge mechanism.plz suggest me with the provision.

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9 Replies

CA girl (Article Trainee-CA Final) (1942 Points)
Replied 12 September 2013

Hello, Yes, you are liable to pay your share of service tax under the reverse charge mechanism even if your service providers are not registered under service tax. Under the reverse charge mechanism the liability of the service receiver and the service provider are independent.

ARINDAM (Manager Internal Audit) (167 Points)
Replied 12 September 2013

thanks for your comment. plz tell me notification.

sanjay singhal (CA) (987 Points)
Replied 12 September 2013

As per Section 68(1) of Finance Act 1994, Person providing taxable service shall pay service tax. However section 68(2) provides that person other than service provider can be made liable to pay service tax by issuing a notification.

Under this provision Notification No. 30/2012 ST dated 20/06/2012 has been issued. As per said notification service receiver is liable to pay service tax in some cases know as Reverse Charge mechanism.

Small service provider exemption is available to service provider only as per that notification. Hence it is not available to service receiver.

thanks

CA Sanjay Singhal

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ARINDAM (Manager Internal Audit) (167 Points)
Replied 12 September 2013

thanks for your reply. so in my question whether company is liable to pay service tax in RCM even they take services from small service provider.

sanjay singhal (CA) (987 Points)
Replied 12 September 2013

Yes, as said by Divya ,under reverse charge mechanism liability of service provider and service receiver is independent.

Your company has to pay service tax in your case.

ARINDAM (Manager Internal Audit) (167 Points)
Replied 12 September 2013

ok sir thanks for your comment.

Sweety sharma (article assistant) (107 Points)
Replied 12 September 2013

Sir what is benefit of cenvat & credit taken on input services. How is to be filled Service Tax Return under Reverse Charge. Please help & discuss on this topic in easy & understandable language.

Thank You in Advance.

Gautam Joshi (Partner) (361 Points)
Replied 12 September 2013

Dear Sweety,

Please note ST under reverse charge is payable on services you receive which are nothing but "business expenses" for you. Hence, they are nothing but "input services" which can be eligible or ineligible for CENVAT Credit.

CENVAT Credit on reverse charge is received on the basis of two documents:

1. On the basis of invoice (e.g. 25% ST charged by manpower supply service)

2. On the basis of GAR-7 challan (e.g. 75% ST charged by manpower supply service)

I hope your doubt is clear.

Best Wishes.

1 Like

Ganeshbabu K (Audit and Tax Advisory) (48559 Points)
Replied 13 September 2013

Liable to pay tax under reversecharge

in your case service provider may enjoy small service provider exemption but just because of that your liability does not comes to an end,,you should discharge your part of liability