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I presented on "Service Tax- Reverse Charge Mechanism" in National Convention for CA students at Bhilwara on 25th January,2014. This is the PPT of it.
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Service Tax- Reverse Charge Mechanism
by:-
Saurabh R. WagleMumbaiWRO0378562
Service TaxService Tax
2
Tax on “Services”
Central government’s levy
No separate statute
Scope has widened since introduction
Reverse charge mechanism
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Section 68 (1) of Finance Act, 1994 :- “Every person providing taxable service to any
person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed. ”
That means responsibility to collect & pay service tax is on “SERVICE PROVIDER”
Exception to the said section are there in section 68 (2)
Continued …
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Section 68 (2) of Finance Act, 1994 :- “In respect of such taxable services as may be
notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66B and all the provisions of this chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. ”
That means under some circumstances “SERVICE RECEIVER” is also liable for payment of Service Tax.
Salient features
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Introduction in the year 2005-06
Scope got widened by amendment in Finance Act,2012
Cases in which service tax is to be paid by Service receiver is “Reverse charge mechanism” (8 categories)
Cases in which service tax is to be paid by Service receiver as well as Service provider is “Partial reverse charge mechanism” or “Joint charge mechanism” (3 categories)
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Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
1.
In respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business
NIL 100%
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Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
2.In respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road
NIL 100%
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Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
3.In respect of services provided or agreed to be provided by way of sponsorship
NIL 100%
9
Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
4.In respect of services provided or agreed to be provided by an arbitral tribunal
NIL 100%
10
Sr.No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
5.In respect of legal services provided or agreed to be provided by individual advocate
NIL 100%
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Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
6.Services provided by a director to a Company (w.e.f. 7-8-2012)
NIL 100%
12
Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
7.
In respect of services provided or agreed to be provided by way of support service by Government or local authority
NIL 100%
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Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
8.
In respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value.
Nil 100 %
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Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability1. In respect of services provided
or agreed to be provided by way of supply of manpower or security service for any purpose
25% 75 %
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Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability2. In respect of services provided
or agreed to be provided by way of works contract
50% 50%
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Sr. No.
Description of a service Service Provider’s Liability
Service Recipient’s
Liability
3.
In respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non abated value.
60% 40 %
Some critical issues
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Applicability of threshold limit of Rs. 10 lakhs
Raising of invoice
CENVAT credit
Point of Taxation
Accounting Entries
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Question :- Suppose, ABC & Co. [a partnership firm] is engaged in providing service of supply of security guards to XYZ Pvt. Ltd. The service was provided for the month of April, 2013 was of Rs. 1,00,000. The invoice of the same was raised on 5th May, 2013. XYZ Pvt. Ltd. paid for service on 10th May, 2013.
As supply of manpower service is covered under partial reverse charge mechanism, both- ABC & Co. and XYZ Pvt. Ltd. are liable to pay service tax in ratio of 1:3.
Point of taxation - May, 2013 Payment of service tax to be done by ABC & Co. [Service provider] 1,00,000*12.36%*25% = Rs. 3,090 (3,000+60+90) Payment of service tax to be done by XYZ Pvt. Ltd. [Service
receiver] 1,00,000*12.36%*75% = Rs. 9,270 (9,000+180+90)
Service provider
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In the books of ABC & Co.
Service receiver
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In the books of XYZ Pvt. Ltd.
Saurabh R. WagleE-mail:- [email protected]
