CA Pardeep Kumar

Relevant Notifications:-  Notification no. 30/2012 dated 26.06.2012 later updated by notification no. 45/2012 dated 07.08.2012 w.e.f.  01/07/2012

Dual System of Service Tax Payment

A. For certain services, service recipients needs to pay 100% Service Tax  – 9 Services

B. For certain services, both service recipients  & service providers are liable to pay partial service tax.

  1. 25-75% Category – 2 Services
  2. 50-50% Category – 1 Service
  3. 60-40% Category- 1 Service

A. Services where the service recipients needs to pay 100% Service Tax:-  

1.    Insurance Agents:-  Service provided to any person carrying on insurance business.   

2.    Transportation of goods by road:-  Services provided by goods transport AGENCY to factory, society, co-operative society, dealer, body corporate, partnership firm, association of persons.

3.    Sponsorship:-  By any person to any body corporate, or partnership firm located in taxable territory.

4.    Arbitral Tribunal:- By an arbitral tribunal to any business entity located in taxable territory.

5.    Legal Service:- By an individual advocate or a firm of advocates to any business entity located in taxable territory.

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6.    Support Service:- By govt. or local authority to any person. 

7.    Renting/hiring of any motor vehicle designed to carry passengers on Abated Value:- By any Individual/HUF/Partnership Firm, Proprietary firm, AOP to any company/body corporate located in taxable territory.

8.    Director:- By director to the company.

9.    From non-taxable territory to taxable territory:- Any taxable service provided by any person located in the non-taxable territory to any person located in the taxable territory.

B. Services where both service receiver & service provider are partially liable to pay service tax:- 

1.   25-75% Category:- (Service Receiver on 75%, Service Provider on 25%)

a. Supply of Manpower:- By any Individual/HUF/Partnership Firm, Proprietary firm, AOP to any company/body corporate. 

b. Security Service:- By any Individual/HUF/Partnership Firm, Proprietary firm, AOP to any company/body corporate.

2.  50-50% Category:-

a. Works Contract:- By any Individual/HUF/Partnership Firm, Proprietary firm, AOP to any company/body corporate.

3.  60-40% Category:- :- (Service Receiver on 40%, Service Provider on 60%)

a. Renting/hiring of any motor vehicle designed to carry passengers on Non- Abated Value:- By any Individual/HUF/Partnership Firm, Proprietary firm, AOP to any company/body corporate.

*Very important point to note is that, liability to partially pay the service tax under Reverse Charge Mechanism is applicable only where the services are provided only to Body Corporates. Further if services are provided by the body corporates, then it would not be covered.

IMPORTANT POINTS:-

1.    Registration & Returns

  • Service recipients will have to apply for service tax registration & consequently needs to file service tax returns.
  • Threshold exemption limit of Rs. 10 lakh is not applicable.
  • If a registered person is also liable to pay service tax as service receiver, he needs to get his service tax registration amended by getting service receiver added.
  • It will be the responsibility of the service receiver to determine the correct nature of service.

2.    Invoice & Service Tax Credit

  • Only proportionate service tax should be mentioned on the invoice.
  • Under the Partial Reverse Charge Mechanism “the service tax payable thereon” needs to be indicated on the invoice by the service provided.
  • 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. Therefore, service receiver has no option but to make payment of service tax in cash.

(The author, Pardeep Kumar, is a Chartered Accountant from Rohtak, Haryana. He can be reached at pardeep.kumar2@escorts.co.in)

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0 responses to “Referencer on Reverse Charge Mechanism”

  1. V.N. Kishore says:

    Sir,
    Very useful data.But I request the author to mention the codes to be mentioned on the challan like registered for GTA and paying for manpower what code to be mentioned on the challan?

  2. Arun says:

    Want to know ..Under which code service receiver can pay service tax on GTA services ….Plz reply

  3. ANAND S says:

    CS Sudhir says:
    May 14, 2013 at 9:16 PM

    Dear Sir,
    We are receiver of “Securiety service” and service provider charges 100% service tax to us. Then we are liable to pay service Tax ? Whether we can take cenvat credit of 100% of service tax which we are paid?

    Service tax liability:

    IF SECURITY SERVICE IS PROVIDED BY A COMPANY THEN THERE IS NO REVERSE CHARGE LIABILITY FOR SERVICE RECEIVER. IF THE SAME IS PROVIDED BY NON COMP ( Ex. Individual/HUF/Partnership Firm, Proprietary firm, AOP) then Service provider will charge 25 % of total service tax in his bill. further, he will have to mention the liability of service receiver ( 75% of total service tax ) too in his bill.

    Cenvat Credit :

    1) The service receiver can avail the cenvat credit agst Invoice ( 100%) ( when service provider is a company)

    2) The service receiver can avail the cenvat credit agst Invoice (25%)and agst challan (75%) when service provider is a non company

  4. ANAND S says:

    To :
    Meet says:
    May 14, 2013 at 11:57 AM

    kindly explain following point in Brief:
    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. Therefore, service receiver has no option but to make payment of service tax in cash.

    Service receiver will pay the service tax liability under reverse charge by making cash/bank payment through challan. He cannot adjust the liability against cenvat credit lying in his books because he his not acting as output service provider. Only output service provider can adjust their service tax liability agst cenvat credit subject to condition in cenvat credit rules, 2004.

    However , The service receiver can take the cenvat credit against the payment of Service tax under reverse charge agst paid challan subject to condition of cenvat credit rules, 2004.

  5. CS Sudhir says:

    Dear Sir,
    We are receiver of “Securiety service” and service provider charges 100% service tax to us. Then we are liable to pay service Tax ? Whether we can take cenvat credit of 100% of service tax which we are paid?

    please give your openion.

    Regards,

    CS SUDHIR KUMAR PANDA

  6. Tushar says:

    Under reverse charge the provider of labour has to charge only 25% service tax of prevailing rate i.e. of 12%. Receiver has to pay balance 75% of prevailing rate. Receiver can take cenvat of both. Stop the provider from charging 100% service tax.

  7. Meet says:

    kindly explain following point in Brief

    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. Therefore, service receiver has no option but to make payment of service tax in cash.

  8. Vijay Ranadive says:

    Dear Sir,
    We are receiver of “Securiety service” and service provider charges 100% service tax to us. Then we are liable to pay service Tax ? Whether we can take ce nvat of 100% of service tax which we are paying?

    please give your openion.

    Regards,
    for Darling Pumnps Pvt. Ltd.,
    V.B.Ranadive

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