Computation of Service Tax
·
X is
a Service Provider and Y is a Service Receiver such that they fall within the
scope of reverse charge mechanism.
·
The
ratio applicable is 25% and 75% for the Service Provider & Receiver,
respectively.
·
An
invoice of Rs. 15 lakhs (excluding tax) has been raised on 1st October,
2012.
For the
given facts the computation of service tax shall be as under:
|
Particulars
|
Amount (in Rs.)
|
|
Invoice Value (excluding tax)
|
15,00,000/-
|
|
Service Tax @ 12.36% (A)
|
1,85,400/-
|
|
Total Value
|
16,85,400/-
|
|
Less: Tax attributable to Service Receiver and to be borne by him
[75% of (A)]
|
1,39,050/-
|
|
Amount Payable by Service Receiver to Service Provider
|
15,46,350/-
|
|
Service Tax payable by Service Receiver
|
1,39,050/-
|
|
Service Tax payable by Service Provider
|
46,350/-
|
Raising service invoice
With reference
to the example given above, while raising a service invoice, the total service
tax payable of Rs. 1,85,400/- needs to be disclosed.
In
addition to that, service tax attributable to the Service Receiver of Rs. 1,39,050/-
shall be disclosed on the invoice so that the receiver knows the amount of
service tax that is required to be paid by him.
Illustrations
1.
Hiring or Renting of Motor Vehicles
-
Case 1 (Abated
value): X (an individual) provides services to PQR Pvt. Ltd. in relation to
renting of motor vehicles, designed to carry passengers, and charges Rs. 100
Service tax
liability on abated value: Rs. (100 x 40% x 12.36%) = Rs. 4.944 i.e. Rs. 5
(Rounded off as per Section 37D of the Central Excise Act)
-
Case 2 (Total
value): X (an individual) provides services to PQR Pvt. Ltd. in relation to
renting of motor vehicles, designed to carry passengers, and charges Rs. 100.
Further, the service provider charges Rs. 7.416 (i.e. Rs. 100 x 60% x 12.36%)
as service tax on the face of the invoice.
In this
case, the Service Receiver (PQR Pvt. Ltd.) will have to discharge Rs. 4.944
(Rs. 100 x 40% x 12.36%) as Service Recipient.
-
The Director of a Company avails services in relation to renting of motor
vehicles to travel from one city to another on a business tour. He obtains the bill from the service provider in the name
of the company and passes it on to the company to obtain reimbursement
of expenses. In such a case, the company
WILL be required to pay Service Tax as applicable on it under the
reverse charge mechanism because the bill has been raised in the company’s
name.
-
The Director of a Company avails services in relation to renting of motor
vehicles to travel from one city to another on a business tour. He obtains the bill from the service provider in his own
personal name and passes it on
to the company to obtain reimbursement of expenses. In such a case, the company WILL NOT be required to pay Service
Tax as applicable on it under the reverse charge mechanism.
2.
Supply of Manpower Services
X (an individual) provides services to PQR Pvt. Ltd. in relation to
supply of manpower and charges Rs. 100.
-
Liability to be
discharged by the Service Provider: Rs. (100 x 25% x 12.36%) = Rs. 3.09 i.e. Rs. 3
(Rounded off as per Section 37D of the Central Excise Act)
-
Liability to be
discharged by the Service Receiver: Rs. (100 x 75% x 12.36%) = Rs. 9.27 i.e. Rs. 9
(Rounded off as per Section 37D of the Central Excise Act)
3.
Works Contract Services
X (an individual) provides services to PQR Pvt. Ltd. in relation to works
contract (original) and charges Rs. 200.
-
Service tax
liability: Rs. (200 x 40% x 12.36%) = Rs. 9.888 (Alternate Rule)
-
Liability to be
discharged by the Service Provider = 50% x Rs. 9.888 = Rs. 4.944
-
Liability to be
discharged by the Service Receiver = 50% x Rs. 9.888 = Rs. 4.944
Valuation
of Works Contract [Notification No. 24/2012-ST dated 6th June, 2012]
(Alternate Rule)
|
Description of Service
|
% of ST payable on total amount
charged
|
|
Original Works
|
40%
|
|
Maintenance or repair or reconditioning or
servicing of any goods
|
70%
|
|
Other works contract – Completion &
Finishing Services
|
60%
|
4.
Services of
Directors in a Company
There are 3 Directors in a Company,
out of whom 2 Directors are whole-time Executive Directors getting salary and
other benefits from the company. The Non-Executive Director is getting sitting
fees for attending the meetings of the Board.
(i)
How will the
service tax liability be calculated in this case and who will bear it?
In this case, reverse charge is
applicable only on the payments made
to the Non-Executive Director in the
form of sitting fees and reimbursements. This Service Tax will be deposited by
the Company on behalf of the Director under the reverse charge mechanism
@12.36%.
(ii)
Will the Company
be eligible to avail Cenvat credit on such payment of service tax?
Yes, the Company
is entitled to avail the input of the Service Tax paid on the Directors’
remuneration on reverse charge basis. The service tax paid by the Company on Directors’
remuneration will be considered as common services and will be eligible under
rule 6(3) of the Cenvat Credit Rules, 2004 as per the ratio of taxable and
exempted services.
(iii)
Will the Service
Tax be payable even if the Director is below the threshold limit of Rs. 10
lakhs and his income from such services to all service receivers is below such
amount?
It is immaterial
whether the Director falls within the threshold limit or not. Service Tax will
have to be deposited by the Service Receiving Company.
5.
Security Services
to a Business Entity
ABC Distributors (partnership firm)
and PQR Distributors Pvt. Ltd. are two business entities receiving services of
security guards from Shine Star Security Agency (Proprietorship).
(i)
Will Reverse
Charge be applicable in this case?
In case of security agency services, for reverse
charge provisions of service tax to apply, the service recipient should be
a business entity registered as a body corporate. A partnership firm is not a
body corporate. Therefore, PQR Distributors Pvt. Ltd. will have to deposit 75%
of the Service Tax under the partial reverse charge mechanism. However, ABC
Distributors, being a partnership firm, will not be required to deposit the
Service Tax as a Service Receiver. The whole of the service tax liability will
be collected and deposited by Shine Star Security Agency.
(ii)
Will the
treatment be different in case the Service Provider is a Company instead of a
proprietorship/ partnership/ HUF?
In case the business providing such security
guards is a company (say, Shine Star Security Agency Pvt. Ltd.) the whole of
the service tax liability will be of the Service Provider irrespective of the
status of the Service Receiver. In such a case, reverse charge will not apply
and neither ABC Distributors nor PQR Distributors Pvt. Ltd. will be liable to
deposit the Service Tax.
(iii)
Security Services
were brought under the Reverse Charge Mechanism vide Notification No. 46/2012
ST dated 07.08.12. What about the service tax liability on such services from 1st
Jul to 7th Aug, 2012?
-
If the security agency has already
raised their invoice for the services provided by them during July 2012,
before 7th August 2012, the service recipient’s liability to make the
payment is recognized on the date of invoice and hence the point of taxation
shall be the date of such invoice. Hence, if invoice has been raised by
the security agency before 7th August 2012, reverse charge will not apply, even if the payment is
made by the service recipient after 7th August 2012. But, if the invoice
for the services provided from 1st August to 31st August 2012 is raised on
31st August 2012, the date of invoice, i.e. 31st August 2012 would be the
point of taxation and hence the service recipient would be liable to make
the payment of his portion of service tax liability under reverse charge,
though part of the service has been provided before 7th August 2012.
-
Similar would be the case in respect
of services provided by Non-Executive Directors to the Companies as such
services were brought under the reverse charge mechanism vide Notification No.
45/2012 ST dated 07.08.12. If the liability to make the payment to the
Director is recognized after 7th August 2012, reverse charge will apply and if
such liability is recognized by the company before 7th August 2012,
reverse charge will not apply.
Repercussions
in Case of Default in Payment of Service Tax Liability by Either Party and Availability
of CENVAT Credit under Reverse Charge
It is clarified by CBEC that the
liability of the Service Provider and the Service Receiver is for the respective
amounts payable by them and is not influenced by compliance or the lack of it
by the other side. Hence, if either party defaults, there shall be no repercussion
for the other party.
Service Provider is allowed Cenvat
credit of tax paid by him on inputs and input services. The respective portions
have been attempted such that the credits available will be well below the
amount required to be paid by such persons. In extreme situations the small
service provider is also being allowed the refund of unutilized Cenvat credit
if any, available with him. Suitable changes will be made in Cenvat Credit
Rules to this effect.
Cenvat
Credit cannot be used to pay tax by a Service Receiver. He will have to make
such payment through the GAR 7 challan. However, the service receiver may claim
the credit of service tax paid based on the invoice issued by the service
provider. For service tax paid on reverse charge, credit may be claimed based
on the TR-6 challan by which payment is made.