Few would have thought what was started as an untested measure to collect service tax could become one of the most intelligent decision to establish the very existence of it. The following discussion lays down the way Reverse Charge Mechanism as we know it today picked up:
The First Effort
Central Government had already introduced a system of tax collection at verifiable source rather than through an unverifiable source under Income Tax Act, 1961 as Tax Deduction at Source (TDS). The system was successful enough to contribute to the foundation of Reverse Charge Mechanism. Vide Finance Act, 1996 the Legislature sought to cast the tax net much wider. It amended certain provisions in the Finance Act, 1994 and, thereafter rules which had originally been framed in 1994 were also amended. Section 68(1A) in particular was introduced to initiate the concept of Reverse Charge Mechanism including on the services of Goods Transport Agency. The initial purpose of introducing the mechanism was to curb the nation-wide protest of illiterate transport agency owners who were hesitant in discharging the service tax liability casted upon them. However it didn’t took long till the whole concept was caught with the faulty provisions of the rules made to operationalize the mechanism. The Supreme Court in case of Laghu Udyog Bharati And Anr vs Union Of India And Ors on 27 July, 1999 discussed in length the provisions of the mechanism and found serious faults in the levy and accordingly quashed the respective rules of Service tax rules, 1994 holding such system as ultra virus of the Act
“We have no hesitation in holding that the provisions of Rule 2(d)(xii) arid (xvii), insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself. The said sub-rules are accordingly quashed.”
Second time lucky
In year 2004, the then Union Finance Minister Mr P Chidambram re introduced the reverse charge mechanism in a revamped way prospecting the intent of legislation to collect tax from persons who receives the services. This time by virtue of Section 68(2) (which was already amended vide Finance Act, 1998 to vest the powers to central government to collect taxes from person as it may determine). Another thing apart from the protest of transporters that prompted the adoption of this system was difficulty in collection of tax from the Foreign Residents or Non Residents Service providers. Consequently Notification No 36/2004-ST dated was issued which prescribed as follows:
In exercise of the powers conferred by subsection (2) of section 68 of the Finance Act, 1994 (32 of 1994), the Central Government hereby notifies the following taxable services for the purposes of the said subsection, namely:
(A) the services-
(i)in relation to a telephone connection or pager or a communication through telegraph or telex or a facsimile communication or a leased circuit;
(ii) in relation to general insurance business;
(iii) in relation to insurance auxiliary service by an insurance agent; and
(iv) in relation to transport of goods by road in a goods carriage, where the consignor or consignee of goods is,
(a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);
(b) any company established by or under the Companies Act, 1956 (1 of 1956);
(c) any corporation established by or under any law;
(d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India;
(e) any cooperative society established by or under any law;
(f) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder; or
(g) any body corporate established, or a partnership firm registered, by or under any law;
(B) any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India.
2. This notification shall come into force on the first day of January, 2005.
Important thing to note here is that the government still sought to collect the tax from verifiable source (the specified assessee), since it would have brought no value had the tax collection been casted upon unverifiable source ( e.g. collection from an unregistered sole proprietor would be as difficult as it would have been from a transport agency). Either way the mechanism’s legality again travelled to the Apex Court only for it being held as proper in case of Gujrat Ambuja Cement Ltd v/s UOI. Relevant Quote:
“…………..But as we have said this is not of the essence of the tax and the mere difference in the machinery provisions between the different classes of service cannot found a challenge of discrimination . If the legislature thinks that it will facilitate the collection of the tax due from such specified traders on a rationally discernible basis, there is nothing in the said legislative measure to offend Article 14 of the Constitution . It is therefore outside the judicial ken to determine whether the Parliament should have specified a common mode for recovery of the tax as a convenient administrative measure in respect of a particular class. That is ultimately a question of policy which must be left to legislative wisdom. This challenge also accordingly fails.”
The stage was set and it didn’t took too long until the scope of reverse charge was expanded to include all those unverifiable means from whom tax collection was difficult. The mechanism was retained when Service tax levy was revamped as Negative List Regime in the year 2012. Not only this Finance Act, 2012 introduced a new two way control mechanism in the form of Partial Reverse Charge Mechanism. The intent was clear, to stop the tax evasion by holding both the service providers as well as receivers responsible for the discharge of service tax. Notification No. 30/2012-ST dated 20.06.2012 read with Rule 2(1)(d) of Service tax rules, 1994 has been amended from time to time to hold as many as 15 different services as the responsibility of service receiver even including the likes of Companies and Body Corporates in respect of the services provided by their directors.
Finance Act, 2015 added another dimension to the mechanism as it substitute the words “service receiver” with the words “person other than the service receiver” in the notification no. 30/2012-ST. The idea now expanded from being a normal reverse charge to a most aggressive and more proactive way to collect tax. The dimension was introduced to impose the service tax collection responsibility upon “Aggregator”. The aggregator in laymen terms could be defined as a web based intermediary. Take an example of Uber Cabs, the services provider is the car owner while the actual recipient of it is the customer who travels in cabs, however Uber (the aggregator is in prime position to control the activities of both), hence it was smart decision to put the responsibility of service tax collection upon it.
Brief Liability Chart under Full Reverse Chart
|Service Provider||Service Receiver||Conditions on Service Receiver||Person liable for payment|
|GTA||specified person||located in TT||such specified Person|
|located in NTT||GTA|
|Non specified person||located in TT||GTA|
|located in NTT||GTA|
|Body Corporate/Partnership Firm located in TT||such body corporate/partnership firm|
|Others||One who providers services|
|Arbitral Tribunal/Individual or Firm of advocates|
|Business Entity located in TT||such business entity|
|Government other than specified services||Business Entity located in TT||such business entity|
|Government with respect to Specified Services||Government|
|Director||Company/Body Corporate||Company/Body Corporate|
|Person located in NTT||Person located in TT||Person located in TT|
|Recovery Agent||Banking Co/FI/NBFC||Banking Co/FI/NBFC|
|MF Agent or distributor||MF or AMC||MF or AMC|
|Supply of manpower or security services||specified person||Specified Person|
|Non specified person||Manpower/Security Agency|
|Selling/marketing Lottery Agent||Lottery Distributor/Selling Agent||Lottery Distributor/Selling Agent|
|Person providing services which involved an aggregator||Aggregator||located in TT||Such Aggregator|
|located in NTT||Person representing aggregator in TT or a person specifically appointed by him for this purpose|
Liability Chart under Partial Reverse Mechanisam
|Service Provider||Condition on Provider||Service Receiver||Condition 1 on Receiver||Condition 2 on Reciever||Liability of SP||Liability of SR|
|Engaged in Renting of Motor Vehicle||Individual/HUF/Partnership/AoP||Engaged in similar line of business||Body Corporate||Abated Value||Nil||100%|
|Non Abated Value||50%||50%|
|Not engaged in similar line of business||Any Person||100%||Nil|
|Works Contractor||Individual/HUF/Partnership/AoP||Any||Body Corporate||50%||50%|
Fundamentals of Reverse Charge Mechanism
1. The Services under the reverse charge are differentiated only for the purpose of collection machinery, there is no other difference as to levy, valuation, exemption, abatement, being a declared service or being declared as a non-taxable services. However there is one noticeable difference as to valuation of Works Contract Services by which both the service providers and receivers are free to choose method of valuation of services being it gross value of ad-hoc value as clarified by the explanation II to notification 30/2012-ST
“Explanation-II. – In works contract services, where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service.”
2. Point of taxation is determined under Rule 7 of POTR, 2011 which will be the date of payment of date after the 3 months in case payment is not made within those 3 months.
“Notwithstanding anything [contained in rules 3, 4, or 8], the point of taxation in respect of the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made
Provided that where the payment is not made within a period of three months of the date of invoice, the point of taxation shall be the date immediately following the said period of three months”
3. Finance Act, 2015 amended Section 67 to include “Out of pocket expenses which are reimbursed to service providers in the course of providing services by the recipient” as consideration for the purpose of value of services. The section do not specifically differentiate the reimbursable expenditure from the point of view of service recipient, therefore it is prudent to assume its jurisdiction to reverse charge mechanism also.
4. The threshold exemption under notification no 33/2012-ST is not available to a service recipient and they have to discharge their service tax liability irrespective of the value of services received by them or provided by them as reflected by the proviso to paragraph 1 of the notification
Provided that nothing contained in this notification shall apply to,-
(ii) such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules,1994.
5. Small Scale threshold from the point of view of Service provider being a provider of services under reverse charge
Although, the services providers don’t have the responsibility for discharging service tax which is a matter of reverse charge mechanism, however the value of services provided by him will be included in the value of taxable services (unless exempt otherwise) for determining the threshold for the purpose of availing exemption under Notification No. 33/2012-ST (SSSP Exemption). However, the exception of this provision is GTA service providers in respect of whom their output services will be not be included for the purpose of determining their overall threshold limit. Para 3 to Notification No. 33/2012-ST states as under:
3. For the purposes of determining aggregate value not exceeding ten lakh rupees, to avail exemption under this notification, in relation to taxable service provided by a goods transport agency, the payment received towards the gross amount charged by such goods transport agency under section 67 of the said Finance Act for which the person liable for paying service tax is as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules, 1994, shall not be taken into account.
This can be explained as follows:
|Service Provider||Services provided||Total Value of services||SSSP Available|
|GTA (RCM)||Works Contract (RCM)||Business Auxiliary (Normal)|
|SP 1||10 lakhs||5 lakhs||4 lakhs||9 lakhs||Yes|
|SP 2||15 lakhs||5 lakhs||6 lakhs||11 lakhs||No|
|SP 3||40 lakhs||Nil||Nil||Nil||Yes|
|SP 4||Nil||5 lakhs||3 lakhs||8 lakhs||Yes|
|SP 5||Nil||5 lakhs||6 lakhs||11 lakhs||No|
6. Cenvat Credit Implications
a. Service recipients are required to discharge the liability of above services only by way of cash vis-à-vis e-payment. The benefit of payment through cenvat credit is not available for utilization as per Explanation to Rule 3(4) of Cenvat Credit Rules, 2004
Explanation. – 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”
Further these services are excluded from the definition of output services under Rule 2(p) of Cenvat Credit Rules, 2004 as amended by Notification No. 28/2012-CE (NT) dt. 20-06-2012 effectively denying credit against them.
Rule 2 (p)
“output service” means any service provided by a provider of service located in the taxable territory but shall not include a service,-
(1) specified in section 66D of the Finance Act; or
(2) where the whole of service tax is liable to be paid by the recipient of service
However the amendment provisions are prospective only, and for the period prior to that, cenvat credit was available for payment as upheld by:
b. Service tax once paid under reverse charge will be available as Cenvat credit on input services subject to other eligibility criteria as prescribed by proviso to Rule 4(7). The proviso is also applicable on the service recipient element of partial reverse charge services.
Provided that in respect of input service where whole or part of the service tax is liable to be paid by the recipient of service, credit of service tax payable by the recipient shall be allowed after such service tax is paid.
Service tax element of recipient once paid by him need not to be reversed/paid by him even if the payment of value of service and service tax element thereof is not made to service provider within the period of 3 months as prescribed by exception limb of 2nd proviso to Rule 4(7)
“Provided further that………, except an amount equal to the CENVAT credit of the tax that is paid by the manufacturer or the service provider as recipient of service,…………..”
The above provisions were amended in the year 2015 to provide relief from the compulsory payment of value of service to avail cenvat credit by the service recipients covered under Partial reverse charge categories
7. Refund of Cenvat Credit to service providers
The ultimate aim of the Cenvat Credit is to continue the chain of credit, however taxing services at the end of service provider and service receiver both caused problem of non-usable accumulation of cenvat credit to service provider. This situation was unwanted because in fact, the “output services” were being collected in Cash without giving credit for the input service which was used for provision of those output service. This could be explained with a simple example.
Say Works Contract Services, Service Provider utilize the input services of interior designer accumulating cenvat credit of Rs.28000 and bills the receiver in following 2 situations:
|Situation 1||Situation 2|
|Amount||Service tax||Amount||Service tax|
|Service Provider||A||Input Services||200000||28000||200000||28000|
|B||Value of Output services||700000||250000|
|Output tax @ 14%||98000||35000|
|Tax Payable 50%||49000||17500|
|Service Receiver||D||Tax payable 50%||49000||17500|
|Central Government||E||Total tax collected (A+C+D)||98000||45500|
It can be seen that in situation 1 above that the service provider is able to utilize the cenvat credit available to him to full which results in ultimate tax rate be 14%, however when cenvat credit is not utilized in full as in situation 2 above, the ultimate tax rate comes to 18.2 %. This kind of situation leads to inflationary circumstances. Therefore to put an end to this adversary, Rule 5B of Cenvat Credit Rules, 2004 was enacted which allow the provider to take refund of accumulated credit pending at his end because of the reason his services come under the ambit of service tax under partial reverse charge mechanism.
The refund is granted with certain controls and safeguards entailed in Notification No. 12/2014-CE to stop the tax avoidance practices which may emerge out of this relief provisions. The notification was amended in the wake of Finance Act, 2015 to delete the services of “supply of manpower for any purpose or security services” in consequential effect of making these services as fully reverse charged.
8. Whether service tax liability can be shifted by inserting a clause in the contract from service provider to service receiver was answered in affirmative by the Apex Court in one of the most landmark ruling in case of M/s Rashtriya Ispat Nigam Ltd v/s Dewan Chand Ram Saran. The background was that the appellant had entered in contract of availing material handling services from the respondent, one of the clause mentioned therein contained the provisions for enabling the appellant to collect the taxes on transactions as TDS in case the responsibility is fixed upon the appellant in discharge of taxes by virtue of tax statutes. The Supreme Court after going into length of provisions of Service tax law as well as the contract between parties held:
“26. As far as the submission of shifting of tax liability is concerned, as observed in paragraph 9 of Laghu Udyog Bharati (Supra), service tax is an indirect tax, and it is possible that it may be passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax. Though the appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of Sales Tax, where the seller is the assessee, and is liable to pay Sales Tax to the tax authorities, but it is open to the seller, under his contract with the buyer, to recover the Sales Tax from the buyer, and to pass on the tax burden to him. Therefore, though there is no difficulty in accepting that after the amendment of 2000 the liability to pay the service tax is on the appellant as the assessee, the liability arose out of the services rendered by the respondent to the appellant, and that too prior to this amendment when the liability was on the service provider. The provisions concerning service tax are relevant only as between the appellant as an assessee under the statute and the tax authorities. This statutory provision can be of no relevance to determine the rights and liabilities between the appellant and the respondent as agreed in the contract between two of them. There was nothing in law to prevent the appellant from entering into an agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the respondent under the contract would be borne by the respondent.
27. If this clause was to be read as meaning that the respondent would be liable only to honour his own tax liabilities, and not the liabilities arising out of the obligations under the contract, there was no need to make such a provision in a bilateral commercial document executed by the parties, since the respondent would be otherwise also liable for the same. In Bank of India (supra) one party viz. the bank was responsible for the formulation of the Voluntary Retirement Scheme, and the employees had only to decide whether to opt for it or not, and the principle of contra proferentem was applied. Unlike the VRS scheme, in the present case we are concerned with a clause in a commercial contract which is a bilateral document mutually agreed upon, and hence this principle can have no application. Therefore, clause 9.3 will have to be read as incorporated only with a view to provide for contractor’s acceptance of the tax liability arising out of his obligations under the contract.”
The above ratio was also maintained by the Hon’ble High Court of Allahabad in case of M/s Bhagwati Security Services (Regd.) v/s UOI
9. In the context of Goods Transport Services, it is pertinent to note that service tax is chargeable on the services provided by Goods Transport AGENCY, the individual transport operators services are not taxable. The position is well clarified in a celebrated judgment delivered by the Hon’ble CESTAT, Bangalore in case of M/s Lakshminarayana Mining Co. v/s CST. After hearing the arguments, CESTAT observed as follows:
“……the claim of the appellants that the impugned services were not exigible to service tax is amply supported by the following extract of the Budget Speech of the Finance Minister, made while introducing the Finance Bill, 2004.
“ 149 . 58 services have been brought under the net so far. I propose to add some more this year. These are business exhibition services; airport services; services provided by transport booking agents ; transport of goods by air; survey and exploration services; opinion poll services; intellectual property services other than copy right; brokers of forward contracts; pandal and shamiana contractors; outdoor caterers; independent TV/radio programme producers; construction services in respect of commercial or industrial constructions; and life insurance services to the extent of the risk premium. I may clarify that there is no intention to levy service tax on truck owners or truck operators……………………”.
In view of this pronouncement by the Finance Minister, CESTAT observed that the legislative intent not to tax truck owners or truck operators is beyond doubt. In the absence of a finding that the appellants received the services for transport of goods from any GTA, CESTAT held that the demand of service tax and penalties are liable to be set aside. The view has been affirmed by Hon’ble High Court of Karnataka in 2012 (26) STR 517 (Kar.)
The principle has been held in S. Selvam v. CCE [2014 (9) TMI 115 (Chennai- Tri)], South Eastern Coal Fields Ltd v. CCE [2014 (8) TMI 857 –(Delhi-Tri)], Carris Pipes & Tubes Pvt. Ltd. Versus Commissioner of Central Excise, Coimbatore [2013 (8) TMI 294 -(Chennai- Tri)].
10. Abatement Implications
Notification No. 26/2012-ST provides abatement on GTA Services based on the pre-condition that cenvat credit of input goods and services is not availed. Earlier abatement to a service recipient was available only when they were able to establish that service providers have not taken the credit of such input goods and services. The situation caused a disharmony among service recipients as they had to unnecessarily obtain undertaking from service providers as to non-availing of cenvat credit.
Since GTA service providers do not have to discharge service tax liability, any cenvat availed by them could easily be scrutinized by the tax authorities, hence by Notification No. 8/2014-ST freed the service recipients from establishing such fact vis-à-vis obtaining undertakings.
11. Unjust Enrichment is not applicable on refund of Service tax paid when no services are received under reverse charge, the position was cleared by Hon’ble CESTAT in case of M/s Wolters Kluwer India Ltd. Vs. Commissioner of Service Tax, Delhi [(2014) 48 taxmann.com 97 (New Delhi – CESTAT)], The CESTAT held that if services under reverse charge are not actually received, service recipient is entitled to refund of Service tax being paid by him, provided he has not taken Cenvat credit thereof. The Department cannot raise issue of unjust enrichment inasmuch as it is tax deposited by the service recipient himself which is being sought to be refunded. The Hon’ble Tribunal further held that if services have not been received and payment made for said services had been adjusted between Indian and foreign Company, said corresponding value of services would not be liable to Service tax.
12. Extent of services of directors of companies and body corporates
“Service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—
(b) a provision of service by an employee to the employer in the course of or in relation to his employment;
Rule 2 (1) (d)
(EE) in relation to service provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate, the recipient of such service;
S. No. 5A of Notification No. 33/2012-ST provides that “in respect of services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate” shall be paid 100% by the company or body corporate
Bare reading of the above provisions signifies that all services of directors shall be taxable as reverse charge unless:
a. The same is not service by virtue of clause (b) of exclusionary clause of section 65B(44) above vis-à-vis, services provided by directors in their capacity as employees of employees. This clause leads to another discussion as to which kinds of services are liable to be taxed. For this purpose directors can be classified into
The Supreme Court observed that a Managing Director can be regarded as a principal employer for the purposes of the ESI Act, 1948. Employees State Insurance Corpn. Vs. Appex Engineering P. Ltd.,(1998) 1 Comp LJ 10: [19981 1 LLJ 274 (SC). Companies Act, 2013 defines Whole Time Directors as “Directors in whole time employment of company”. Their employee status is also corroborated from the fact that the remuneration paid to whole time directors and Managing Director are regarded as income from salary and is subjected to TDS under Section 192 of the Income-tax Act, 1961 as amended.
Accordingly, the payment of salary, allowances, PF contribution, perquisites, etc to Managing Director and Whole Time Directors being employees of the company in the course of or in relation to his employment; would not constitute a taxable service.
However, any services provided outside the ambit of employment like advice or consultancy to the company outside the scope of employment for consideration would constitute a service. Reverse charge mechanism would operate here.
As far as Non-executive directors and independent directors are concerned, there cannot be any consideration in course of employment as they are not the employees of company, thus rendering services. Reverse charge mechanism would operate here.
b. Another fundamental question which needs discussion is whether all the services provided by one person to company attracts reverse charge merely because he happens to be the director of that company. For e.g., would services of renting of property movable or immovable by a director to his company which do not have any relation whatsoever to his status a director be also under the ambit of Reverse charge mechanism? The answer lies in the budget presentation of 2012 “Budget 2012: Changes in Service tax”, which list down payments to directors which are taxable i.e.
The guidance material do not leave any precedence that those “personal capable service are also liable to be taxed under reverse charge”. Further it’s a rationale presumption that renting services are provided in capacity of a landlord and not as directors hence these services would not be taxable under reverse charge. This differentiation gains importance since the directors in their personal capacity could be eligible for threshold exemption which is not there for a company and body corporate.
Another important aspect which is clarified by the CBEC Draft Circular F.No 354/127/2012-TRU by Ministry of finance is that even when the directors are appointed in representative capacity on behalf of a controlling entity or government entity. It is clarified that:
13. Tax inadvertently paid by the service provider when services were taxable under reverse charge
This part deals with one of the most significant procedural lapses of this system, what happens when the tax is already paid by the service provider, does it call for the payment from service receiver also? Off course, if the loose strings of this system let this happen, it would amount to double taxation which is as absurd as anything. Accordingly, taking a rationale view, the Hon’ble CESTAT, Delhi in case of M/s. Lilason Breveries Limited vs CCE, Bhopal has held as under:
“Regarding the other issue, the finding of the original authority is reproduced below:-
Regarding third issue, I find that as per Rule -4B of Service Tax Rules, 1994, a consignment note is to be issued by the goods transport agency. Explanation appended to this rule says in the last part that the consignment note shall show the person liable for paying service tax whether consignor, consignee or the goods transport agency. This provision shows that it is open for all the three parties to pay service tax and the tax liability shall be taken as legally met in all the three cases. The noticee has produced copies of TR-6 challans and affidavits of the concerned transporters showing payment of service tax by them. Therefore, the question of demanding service tax once again does not arise. No tax liability can be affixed to the notice in this case.”
The view was upheld in case of Commissioner of Central Excise, Kanpur v. Om Tea Company (APPEAL NOS. ST/ 603-604 OF 2008 FEBRUARY 23, 2012) and in case of Umasons Auto Component Pvt Ltd vs Commissioner of Central Excise & Customs, Aurangabad [ STO 2013 CESTAT 1548]
14. The flip side of inadvertent tax payment is whether the service tax which are not liable to be taxed, but whether wrong discharge of service tax under reverse charge by service recipient would entitle them of the cenvat credit of it? In case of Bajaj Allianz General Insurance Co. Ltd. Vs. Commissioner of Central Excise, Pune-III [2014-TIOL-1540-CESTAT-MUM], Hon’ble CESTAT, Mumbai determined the place of provision of the service rendered by the insurance agents located in J&K and held that the Insurance auxiliary services provided by the insurance agents in the State of J&K were not taxable and therefore, the Appellant as Insurers were not liable to pay Service tax. Further, the Hon’ble Tribunal relied upon the decisions in the case of Mahalakshmi Textile [1967 (66) ITR 710 (SC)] and Nitco Tiles [2007 (220) ELT 827 (Tri. Mum)] and held that the Cenvat credit taken by the Appellant is nothing but refund of the Service tax paid by them on the services on which they were not required to pay Service tax and the same cannot be denied.
To conclude, it can be said that Reverse Charge Mechanism was a very remarkable improvement in the service tax law, it enabled the government to effectively control the collection of taxes where it could have had a massive hit due to existence of a weak base of assessee’es. The mechanism still suffers from its cons, because a smaller assessee would also have to take registration under service tax act which is very unnecessary burden on them, introduction of threshold limit on reverse charge is the need of the moment particularly in case of GTA services. The chances are remote, that reverse charge mechanism would retain its identity in upcoming GST Regime, because of government’s concentrated effort to cover even the smallest operating unit, still the system may found its existence in future because of its distinctive feature of mining the verifiable sources of tax collection.