• Aug
  • 13
  • 2012

Reverse Charge Mechanism of Service Tax

 CA Prashant Gupta

Reverse charge mechanism is not a new concept in service tax. Under the reverse charge mechanism, instead of service provider, the service receiver is liable to pay service tax. In that case, the service receiver will register himself with service tax authorities and file the required returns. The general exemption of Rs. 10 lacs is not available for that. The government has imposed the liability on service receivers before that also such person receiving services by goods transport agencies but these requirements are mandatory for companies and government authorities receiving the services in old days.

The Government has issued Notification no 30-2012 dated 20/06/2012 where it has given complete list of services that are covered under reverse charge mechanism. In some cases both service receiver and service provider has to pay service tax in prescribed ratio. The complete list is as under:-

Sr. No. Description of service Percentage payable by service provider Percentage payable by service receiver
1 Insurance Agent

Nil

100%

2 Goods transport agency (Applicable to transport by road)

Nil

100%

3 Sponsorship

Nil

100%

4 Arbitral Tribunal

Nil

100%

5 Support services by government or local authorities

Nil

100%

6 Hiring of motor vehicle to carry passenger on abated value

Nil

100%

Hiring of motor vehicle to carry passenger on Non-abated value

60%

40%

7 Individual Advocate

Nil

100%

8 Supply of man power or security services (wide notification no 45-46 wef 7-8-12)

25%

75%

9 Works Contracts

50%

50%

10 Import of Services

Nil

100%

11 Services by director to company (wide notification no 45-46 wef 7-8-12)

Nil

100%

 However there are certain conditions and exemption, where satisfaction of those conditions will attract liability of service tax under reverse charge mechanics.

1. Insurance Agents:- Any service provided by insurance agents to insurance companies will be liable for service tax without any exemption or amount limit.

2.    Goods transport agency:- The reverse charge is applicable only when consignor or consignee is a factory registered under factory act, registered society, co-operative society, any dealer registered for under central excise act, any body corporate or any partnership firm.

3.    Sponsorship:- where service receiver is a body corporate or a partnership firm.

4.    Arbitral tribunal:- where service provider is arbitral tribunal and service receiver is a business entity having turnover more than Rs. 10 lacs in preceding financial year.

5.    Advocate :-   where service provider is individual advocate or firm of advocate and service receiver is a business entity having turnover more than Rs. 10 lacs in preceding financial year.

6.    Support services to government or local authorities:- Where service receiver is any business entity.

7.    Hiring of any motor vehicle:- where service provider is Individual/ proprietorship/ partnership/ HUF and service receiver is company registered under companies act 1956 or business entity registered as body corporate in taxable region.

8.    Supply of manpower or security services:- where service provider is Individual/ proprietorship/ partnership/ HUF and service receiver is company registered under companies act 1956 or business entity registered as body corporate in taxable region.

9.    Work Contract:- where service provider is Individual/ proprietorship/ partnership/ HUF and service receiver is company registered under companies act 1956 or business entity registered as body corporate in taxable region.

10. Import of services:- Any servicers provided by any service provider to any service receiver.

11. Services of Director to company:-  The services provided by any director (Individual) to the said company. However it is clear now that services provided by director in employee employer relationship do not attract service tax.

However some other explanations are also there. In case of goods transport agency, a person who is liable to pay freight shall be treated as person who receives the service. In case of work contract services, if both service provider and service receiver is liable to pay tax then service recipient has option to choose the valuation method independent of service provider.

However the government has issued the notification and made the reverse charge liable on some entities where turnover exceeds Rs. 10 lacs. In such cases that entities has to register itself with service tax authorities even the amount of service received from such persons is in hundred of Rupees. Once the person has registered under service tax, he has to file the return half yearly even if the taxable turnover is Nil.

In case of advocate, they have to indentify which of their clients has turnover of more than Rs. 10 lacs and ask them to deduct and pay service tax and for others they have to pay service tax. It is also not clear what happen when the service receiver will not follow the provisions. In that case whether the service provider is liable for payment of taxes.

In case of hiring of vehicle, the provisions are applicable to companies whether Indian companies or foreign companies. If they receive any kind of service by hiring of any vehicle they have to deduct service tax and register themselves with service tax authorities.

However the intention of government is very clear for this type of arrangement. They want to collect the tax from the person receive the services and apply the concept of tax deduction at source so that the concealment of tax revenue could minimize. The intention and formula applied by the government is no doubt a good one but there are practical difficulties also. The companies or entities which are not providing any kind of service but receiving any of the above mentioned services shall get themselves registered and pay the service tax. Even in case they have stop receiving such services they have to file a nil return with the authorities.

Sandeep Kanoi

23 Responses to “Reverse Charge Mechanism of Service Tax”

  1. K.LAKSHMI says:

    PLEASE HELP ME OUT FOR FILLING SERVICE TAX RETURN ONLINE AS I COME UNDER WORKS-CONTARCT
    AS THERE ARE 2.472
    3.09

    AND ON ONLINE E-FILLING IT SHOWS THAT THE RATE ARE INCORRECT…

    PLEASE HELP ME SIR

  2. anuguru says:

    Sir,
    Pl clarify the following. My client doing Man Power supply to the industries and he collected 100% service tax from the party and paid to service tax. Now the co., informed that the Excise Audit Team visited their premises and advised us to adjust the input tax payable by us in future payments.
    Pl advise us how do adjust and how do file the ST3 in this regard.
    regards
    anuguru

  3. SMIT says:

    PLEASE HELP ME OUT FOR FILLING SERVICE TAX RETURN ONLINE AS I COME UNDER WORKS-CONTARCT
    AS THERE ARE 2.472
    3.09

    AND ON ONLINE E-FILLING IT SHOWS THAT THE RATE ARE INCORRECT…

    PLEASE HELP ME OUT

  4. Apurba Mukherjee says:

    Sir, In the case of service receiver is an Unregistered probrietor ship concern & service provider(security guard) is registered propership concern then how service receiver(proprietorship) will pay to service provider’s monthly bill, whether it is with full 12.36% service tax by cheque pmt or what

    Kindly confirm ASAP

    Thanks
    Apurba Mukherjee
    apurba@suryabusiness.in
    mob 9051112229

  5. Ramesh Kumar says:

    Dear Sirs,

    Please explain whether the 75% abatement of G.T.A is an exempted service or not as our Central Excise people asking us to reverse 6% amount on 75% value of GTA amount under Cenvat rules 2004 , under rule 6(3)i/ Whether it is right or not please explain.
    Thanks with regardes

  6. Ankush Saluja says:

    can anybody tells what is my service tax liabily under reverse charge in car hiring service if service provider already charge from me service tax amount. thanks

  7. madhavan says:

    Sir I am working as Assistant Divisional Engineer in APTRANSCO (Andhra pradesh State Government undertaking) and sir while sanctioning the estimates and entering into the agreements with various contractors we are finding difficulty in calculating service tax under reverse charge mechanism so please send us the list of work and calculations for computing service tax under reverse charge mechanism. for example how is the service tax to be computed for the following work-1. Repair and Rectification of thermal fault in the Power Transformer and also for 2. filteration of transformer oil

  8. Seth says:

    We are an event management pvt ltd company; We are charging tax as service provider on our clients and taking input credit of service tax as where applicable. However some vendors are not charging service tax as they are not registered; Shall the reverse service tax mechanism applicable on us also?

  9. SHANIB says:

    Is the reverse charge mechanisim also applicable on Partnership companies, who are receiving the security services from Individual/ proprietorship/ partnership/ HUF partnership concerns????
    Do the Partnership concern receiving services of security gaurd also have to deposit 75% service tax on behalf of the service provider?????

  10. ila says:

    pl.help in understanding the reversal mechanism. with eg.
    If a company appointed 2 to 4 individual labour contractor, each of thems bill during the year comes below 8,00,00 . so the overall contractwages for company is around somewhere 2200000 to 2400000, in that case
    is service tax payable? if yes who has to pay how much.?

  11. Sanjeevan Kasbe says:

    We are in Engineering Construction business. We hire vehicles at our sites and as per the law we have to deduct service tax on services. However, in case of service provider having turnover less than 10 lacs, how can we deduct service tax.

    Please advise.

  12. B.Sreenivasa Rao says:

    RCM had been showing its impact on Small & Medium Exterprises as some corporate service receivers had already started their probing enquiries for corporate service providers to avoid the RCM compliance. These RCM provisions are really hurting large segment of our economy.

  13. B.Sreenivasa Rao says:

    If full service tax is charged by service provider for services covered under reverse charge mechanism instead of partial or NIL, the service receiver need not pay any service tax again under reverse charge mechanism, if service receiver pays entire bill amount as cahrged by service provider. Under destination based principle, finally the burden is boren by service receiver i.e ultimate consumer. Of course, lower authorities may objet but higher authorities accept since exchequer is being paid at full rate of service tax.

  14. CA. AMIT LATH says:

    @ hari – GTA abatement (75%) can be availed by the service receiver

  15. hardik dalal says:

    please guide,
    In work contract service when abatement is taken n bill prepare by 50% -50% then who wii take cenvat credit n  which amount should be taken n plz define by one example….

  16. Adamya says:

    As per education guide service provider should charge full service tax.

    however in my opinion in all these case SP should mention respective portions of ST separately on invoice, with the note that SR portion need to be paid by SR.

    further accounting should also change  to ensure there is clarity is books at the time of payment. non payment by SR is his responsibility.

  17. Adamya says:

    Narendra – you service are not covered under reverse charge

  18. honey says:

    what happen if Service Provider chrged full service tax rate instead of partial

  19. narendra says:

    Whether Manpower Recruitment service is under reverse charge as manpower supply service ?

  20. hari says:

    Whether a Service Receiver can avail 75% on GTA Please clarify

  21. JAGDISH says:

    People under reverse mechanism are already charging service tax and the recipients are in doubtful what to do if provider has already charged.

    Pls help

  22. ravi says:

       In these reverse charge mechanism total service tax portion indirectly borned by the service recevier .and otherthan negative list services also service providers borned by the liabulity but that same has been indirectly collected from service recevier .then what is benfit to the government increasing reverse charge mechanism services  that one having my doubt or else any other benfits has government

  23. Adamya says:

    good read, 

    please guide on the circular under which turnover for Service Recipient is defined as 10 lac.

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