CA Aasmee Mangla
It’s been a while now since the amendment has come on Reverse Charge Liability on Rent a Cab Service. But, the Finance Departments of the Big Corporates are still facing hardship in calculating the correct amount of Reverse Charge Liability they need to deposit with the Service Tax Department, especially when they receive diversified invoices from Rent a Cab Service Providers.
It is seen that due to little acquaintance with law, Rent a Cab Service Receivers are bluntly charging service tax on 50% of the invoice value, thereby causing working capital loss as well as wrong compliance of law.
Before taking deeper dive into the area of turmoil which may crop up pursuant to stated amendment, it is apposite here to have an overview of the amendment brought on Rent a Cab Service w.e.f. from 1st October’2014.
RCM on Rent a Cab Service is governed by 2 Notifications-26/2012 and 30/2012. In regard to N.No. 26/2012 (Abatement Notification), there has been no change, i.e. even after 1st Oct’2014, abatement available on Rent a Cab service is 60% only and therefore taxable portion is 40% as depicted below;
|9||RENTING OF MOTOR CAB||40|
However, RCM Notification has been amended w.e.f. 1st Oct’2014 and post amendment scenario is depicted hereunder;
It is pivotal to highlight here that in case of Reverse Charge Liability, there can be following two situations;
Abatement of 60% claimed by Service Provider- In such cases, 100% liability of Service Tax is on Service Recipient and therefore no Service Tax will be charged on the Invoice by the Service Provider. Henceforth, Service Tax has to be deposited with the department by Service Recipient @ 14.5% on 40% of the Invoice value.
Abatement of 60% not claimed by Service Provider- This case arises when Service Provider wishes to claim CENVAT Credit on Input Services taken by him and thereby foregoes the benefit of Abatement. In these cases, there arises 50-50 liability of Service Tax on both Service Provider and Receiver. Therefore, 7.25% of ST will be charged by Rent a Cab Provider on the invoice and other 7.25% has to be deposited with the department by Service Recipient from his pocket.
To sum up, if the compliance of law at the end of Service Provider is correct, then only two following situations can arise at the end of Service Recipient;
However, problem arises when the invoice received in respect of rent a cab service taken contains Service tax amounts at different rates from what stated above. Following two situations arises when Service Provider charges Service Tax at wrong rate on the invoice;
It is hoped that after reading this article, there remains no confusion in the minds of Business Entities receiving Rent a Cab Services in respect of Reverse Charge Liability they need to discharge.