Q.ABC LTD COMPANY HAS RECEIVE MANPOWER HIRING SERVICES FROM MR.A. MR. A NEVER PAID TO SERVICE TAX BECAUSE HIS TURNOVER LIMIT IS BELOW THE THRASH HOLD LIMIT EVER YEAR.
FROM 01.07.2012, ABC LTD IS LIABLE TO PAY SERVICE TAX UNDER REVERSE CHARGE.
NOW QUESTION IS WHETHER ABC LTD IS ALSO PAY SERVICE TAX UNDER REVERSE CHARGE ON OTHER EXPENSE (OTHER THAN MANPOWER HIRING CHARGE) INCLUDING IN INVOICE?
ANS:- YES.
Rule 5(1)& (2) of the Service Tax (Determination Of Value) Rules, 2006 say that where any expenditure or costs are incurred by the service provider (except as Pure Agent) in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.
Explanation 2 to Rule 5(2) further clarifies that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.
Hence, in my opinion, service tax shall be payable by the recipient, under reverse charge mechanism (RCM), on the total consideration being paid (i.e. fees plus expenses or other costs incurred).
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