Service tax reverse charge mechanism

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.

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?

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.