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Service tax reverse charge mechanism

CA Adesh Gupta (Finance Manager) (160 Points)

06 October 2013

One of my client is a partnership firm dealing in trading of finished iron & Steel products and is a registered dealer in central excise. The firm was formed last year in Feburary. During the period ending March 2013 it paid Freight inward of Rs 40000 and in the current year it has paid freight of nearly Rs 2 lakhs till date. I just want to know whether the firm is required to obtain registration under service tax and whether it has to deposit Service tax on all the freight paid till date.

Is Small Service provider Exemption applicable in case of Reverse charge?

and if No whether the credit of Service tax paid can be claimed

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5 Replies

CA. RAVIKUMAR (Chartered accountant) (1589 Points)
Replied 07 October 2013

No small service provider exemption not applicable for reverse charge except for legal services You can claim input tax paid on freight.

Pawan Mittal (CA Final) (711 Points)
Replied 07 October 2013

Dear Adesh Sir

Transportation of goods is covered under reverse charge mechanism. As your client is a partnership firm, therefore he is liable to pay service tax under reverse charge mechanism.

Under reverse charge mechanism no exemption is available to the service receiver. He has to pay the service tax in CASH. By using the word "CASH" I mean he cannot utilize any input credit against payment of service tax under reverse charge.

But, of course, the service tax paid under reverse charge can be claimed as credit on input services.

Manoj Agarwal (Service Tax Consultant Rourkela Service) (3456 Points)
Replied 07 October 2013

2. Basic Exemption vide N/N 33/2012-ST for Rs. 10 Lacs is not available to Service Recipient.

3. Abatement of 75% can be availed, if the GTA has not availed the Cenvat Credit on Input or Input Services. Means, you can paid 12.36% of 25% of Freight Paid.

4. Cenvat Credit is available on the basis of GAR-7 Challan evidencing payment of service tax, in case of input service. But it seems that a trader registered as an excise dealer may not be providing any output service and hence how will he utilize the cenvat credit?

Pratik Mahajan (B.Com M.Com CA Final CS Professional) (54 Points)
Replied 08 October 2013

1) Since your client being a partnership firm and a registered dealer with central excise and is also paying freight he will be liable to pay service tax under reverse charge basis without utilizing the balance of CENVAT credit i.e. he will have to pay the amount of service tax in 'CASH'. Registration under service tax is required to be obtained by a person who is 'LIABLE' for paying service tax. Since your client is liable to service tax under reverse charge mechanism, he will be required to obtain registration under service tax.

2) In case of reverse charge mechanism, SSP exemption cannot be availed. As your client is receiving the GTA service it will be an input service for him. So the question of availing SSP exemption doesn't arise.

3) Service tax paid under reverse charge basis is available as input tax credit provided the person receiving the said service is a manufacturer of excisable goods & using the said service for the purpose of manufacture or a provider of output service. Your client being a trader and not a manufacturer/service provider, won't be entitled to avail the service tax amount paid on the input service.

Abhishek (BUSINESS) (29 Points)
Replied 02 April 2015

Originally posted by : Manoj Agarwal

1. A partnership firm or a Registered Excise Dealer, both are covered under Reveres Charge, if they pay freight towards inward/outward transportation of goods by road to a GTA. Only if the freight/vehicle is less than Rs. 1500, the same is exempted. Transportation of some goods is fully exempted (NN - 25/2012-ST)

2. Basic Exemption vide N/N 33/2012-ST for Rs. 10 Lacs is not available to Service Recipient.

3. Abatement of 75% can be availed, if the GTA has not availed the Cenvat Credit on Input or Input Services. Means, you can paid 12.36% of 25% of Freight Paid.

4. Cenvat Credit is available on the basis of GAR-7 Challan evidencing payment of service tax, in case of input service. But it seems that a trader registered as an excise dealer may not be providing any output service and hence how will he utilize the cenvat credit?

Sir,

If the trader is registered as an Excise dealer as well as registered with Service tax for providing Business Aux Service (receiving commission on sales against consignment) and is paying Service tax on Commision received, then is he eliglble to utilize the input tax credit for Service tax paid under reverse charge basis on GTA?