Reverse Charge Mechanism - Service Tax

Presented by :

CA Atul T MehtaB.Com, FCA, DISA(ICAI)

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RefreshReverse Charge Mechanism

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PURPOSE

To Give Insights of Service tax Under Reverse Charge Machanism

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Basics on Reverse Charge Mechanism

Normally, service tax is payable by person providing the service. Section 68(2) makes provision for reverse charge i.e. making person

receiving the service liable to pay tax Provisions relating to reverse charge are contained in Notification No.

30/2012-ST dated 20-6-2012. Cenvat credit cannot be used to pay tax by service receiver. Service

tax as to be paid by cash only i.e. GAR-7 challan. Once paid, Cenvat credit can be taken A statutory liability cannot be shifted by mutual agreement. If statutory

liability is of service receiver, he alone is liable.

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Basics on Reverse Charge Mechanism (Ctnd)

In some cases, reverse charge is applicable only when service receiver is business entity registered as ‘Body Corporate’.

Business entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession. Thus, Government, charitable organisation is not ‘business entity’.

Body Corporate – Company, LLP, Cooperative Society is Body Corporate – Firm, HUF, Trust is not ‘Body Corporate’ [Society registered under Societies Act is legally not ‘body corporate’].

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RCM Threshold Exemption

Liability of Service Provider and Service Recipient is Independent of Each Other.

Even though service provider has claimed small tax payer (Below Rs. 10L) exemption Service receiver has to pay Service tax.

Threshold Exemption of Rs. 10L is not available to SR.

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Whether SR can pay ST by utilizing CENVAT Credit?

NO

Explanation to Rule 3(4) of CCR provides that “CENVAT Credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.” Therefore, SR has no option but to make payment of ST and claim the same as Credit thereafter

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Service tax Rates under RCM

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Insurance Agent to Insurance Company

Services of an insurance agent to any person carrying on insurance business w.e.f. 01/07/2012.This was in effect even before finance act, 2012.

12.36%

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GOODS Transport Agency

goods transport agency in respect of transportation of goods by road w.e.f. 01/07/2012. This was in effect even before finance act, 2012.

75% Abatement Effective Rate 3.09%

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GOODS Transport Agency

Applicable when Freight Payable By Any factory registered under factories Act Any society registered under society registration Act,

1860 Any co-operative Society Any dealer of excisable goods who is registered under

Central Excise Act, 1941 Any Body Corporate Any Partnership Firm including AOP

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GOODS Transport Agency

EXPLANATION I to Notification 30/2012

The Person Who Pays or is liable to pay freight for transportation of goods, located in taxable territory shall be treated as the person who receives the service.

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Services by way of sponsorship

Services by way of sponsorship w.e.f. 01/07/2012. This was in effect even before finance act, 2012.

Covered: All sponsorships.

Service recipient’s liability is 100%. Rate 12.36%

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Services of an arbitral tribunal 

Effective Date 01.07.2012

Covered: Any payment for any service.  Service recipient’s liability is 100%.

Effective Rate 12.36%

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Services of advocates (individual/firm) w.e.f. 01/07/2012.

Covered: Advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority. Service recipient’s liability is 100%

Effective Rate : 12.36%

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Services of directors of a company w.e.f. 07/08/2012.

Covered: Any payment to non-executive directors for any service e.g. sitting fee, reimbursements

Effective Rate : 12.36%

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Support services by Government or Local Authority w.e.f. 01/07/2012

Covered: Services of police, fire, ambulance etc. Excluded: Renting of immovable property, services of

Post Department by way of speed post, express parcel post, life insurance and agency services, services in relation to an aircraft or a vessel, transport of goods or passengers, municipal, public convenience and other public services like water supply, sanitation, and solid wastemanagement.

Service recipient’s liability is 100% Effective Rate : 12.36%.

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Import of service w.e.f. 01/07/2012..

This was in effect even before finance act, 2012

Covered: Any payment for import of taxable services from any place outside India.

Service recipient’s liability is 100%. Effective Rate : 12.36%

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Renting of a Motor VehicleWhen SP is not availing input credit

Applicable to Hiring of Passenger Cars, Cabs, Bus etc

Not Applicable to Radio Taxy, Metered cab, Three Wheeler, contract carraige, public transport not predominantly for tourism purpose

Abatement 60% Effective Rate: 4.944% (40%)

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Renting of a Motor VehicleWhen SP is availing input credit

Conditions Same as discussed

Service Recipient : 4.944% (40%)

Service Provider : 7.416% (60%)

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Supply of Manpower 

WEF 01.07.2012 Security Services WEF 07.08.2012

Covered : Payment for services of the staff seconded/deputed with the company under an arrangement where the staff remains on the payroll of the original employer only

Service Recipient : 9.270% (75%) Service Provider : 3.090% (25%)

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(a) Works Contract Service

WEF 01.07.2012 Any Contract in which Labour + Material is used For New Construction, any addition to

abandoned structures on Land For Erection, commissioning or installation of

plant, machinery or equipment Abatement : 60% SR and SP both 2.472% Each

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(b) Works contract w.e.f. 01/07/2012

Any Contract in which labour + Material used For maintenance or repair or reconditioning

of any goods e.g AMC of Movable items/ office equipments

SP and SR both 50% Each Abatement : 30% Effective Rate: 4.326% Each

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(C)Works contract w.e.f. 01/07/2012

Any Contract in which use of labour and material for maintenance, repair, completion and finishing

services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property 

SP and SR 50% Each Abatement : 40% Effective Rate: 3.708% by both

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SUM UP

Type of Service % Payable by SP % Payable by SR

Insurance Agent NIL 100%

GTA NIL 100%

Sponsorship NIL 100%

Arbitral Tribunal (Advocate)

NIL 100%

Support Service (GOV) NIL 100%

Hiring of MV (no abatement)

NIL 100%

Hiring of MV (abatement)

60% 40%

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SUM UP (Contd)

Type of Service % Payable by SP % Payable by SR

Supply of Man Power or Security Services

25% 75%

Works Contract 50% 50%

Import of Services NIL 100%

Services by Director of the Company

NIL 100%

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