The Reverse Charge Mechanism of Service Tax
was introduced vide Notifications No. 30/2012 issued by the Service Tax
Department dated 20th June, 2012. The following is a summary of all
relevant provisions of Service Tax related to the Reverse Charge Mechanism.
Service Tax Liability to be Discharged
by Service Recipient
For the list of services given below, the
Service Recipient is required to discharge the service tax liability in full,
or both the service recipient and service provider have to discharge the tax
liability as per the prescribed ratio.
|
S.No.
|
Description
of a Service
|
% of
Service tax payable by Service Provider
|
% of
Service tax payable by Service Recipient
|
|
1
|
Insurance agent
to insurance agent Not Applicable to Business Development Expenses
|
NIL
|
100%
|
|
2
|
Transport of goods by road
|
NIL
|
100%
|
|
3
|
Sponsorship
service
|
NIL
|
100%
|
|
4
|
Arbitral services
|
NIL
|
100%
|
|
5
|
Legal services
by Individual advocate or a firm of advocates
|
NIL
|
100%
|
|
6
|
Support services by Government or
local authority (excluding renting of immovable property and certain other specified
services)
|
NIL
|
100%
|
|
7
|
Renting of
passenger motor
vehicles*- With
abatement-
Without abatement
|
Nil
60%
|
100%
40%
|
|
8
|
Supply of manpower for any service*
|
25%
|
75%
|
|
9
|
Works Contract
service*
|
50%
|
50%
|
|
10
|
Any taxable service where the Service
provider is located in a non taxable territory and service recipient located
in a taxable territory
|
NIL
|
100%
|
*in case where the service provider is a non
corporate entity and the service recipient is a corporate entity.
“Renting of
immovable property” to extend to include any other service in relation to such
renting also.
“Supply of
manpower” means supply of manpower, temporarily or otherwise, to another person
to work under his superintendence or control.
Point of Taxation
Point of taxation is the date of payment to
the service provider.
·
Provided payment is
made within 6 months from the date of invoice, otherwise point of
taxation will be the date of invoice.
·
Invoice needs to
be issued by the service provider within 30 days of completion of each
event/service.
·
If the invoice is
not issued within the specified time, point of taxation will be the date of
completion of provision of service.
·
In case of
“associated enterprises”, where the person providing the service is located
outside India, point of taxation will be the earlier of:
Ø
Date of debit in
the books of accounts of the person receiving the service, or
Ø
Date of making
the payment.
For any service whose point of taxation has
been determined and whole liability affixed before 01.07.2012/07.08.2012, the
new provisions will not apply. Merely because payments are being made on
or after 01.07.2012/07.08.2012 will not add any additional liability on the
service receiver in respect of such services.
What
shall be the point of taxation for the service recipient? When will he need to
pay the service tax in respect of his liability?
Usually, it is the invoice or date of receipt of payment
which is the point of taxation for the service provider. However for the service
recipient, in terms of Rule 7 of the said rules, point of taxation is when he
pays of the service. Thus in the case where the invoice is issued in July 2012
and the service recipient pays for the same in August 2012, the point of
taxation for the service provider will be the date of issue of invoice in July
2012. The point of taxation for the service recipient shall be the date of
payment in August 2012. The service provider would be required to pay tax (to
the extent liability is affixed on him) by 5th/6th August, 2012 or 5th/6th
October, 2012.. The service recipient would need to pay tax (to the extent
liability is affixed on him) by 5th/6th September, 2012.
No Threshold Limit of
Exemption from Service Tax in Case of Applicability of Reverse Charge
·
Service tax on
reverse charge is applicable even if the service provider is exempt
from service tax up to the taxable value of Rs. 10 lakh.
·
There is no
threshold limit of exemption for the service receiver
under reverse charge mechanism.
·
If
the service provider is exempted, being a SSI (turnover less
than Rs. 10 lakhs), how will the reverse charge mechanism work?
The liability
of the service provider and service recipient are different and independent of
each other. Thus, in case the service provider is availing exemption owing to
turnover being less than Rs. 10 lakhs, he shall not be obliged to pay
any tax. However, the service recipient shall have to pay service tax which he
is required to pay under the partial reverse charge mechanism.
Input Credit
of Service Tax paid by Recipient under Reverse Charge Mechanism
·
Input Credit can
be availed on the basis of tax payment challan.
·
In case of Banks
and NBFCs, Rule 6(3B) of CENVAT rules will also apply to input credit
of service tax paid under reverse charge mechanism.
100% Service
Tax Liability with Service Provider when it is Corporate Entity
In the following cases only, 100% service tax liability will be with the service provider,
if it is a corporate entity. The service recipient will pay nothing
under reverse charge mechanism in these cases.
a)
Renting of motor
vehicle
b)
Manpower & Security
Services
c)
Works contract
