CA  Pradip R Shah

Introduction

1.0  The concept of “reverse” though important, has limited applicability in our day-to-day life. We are familiar with reversing a vehicle for limited purposes. A vehicle cannot be driven in reverse for moving forward. However, when it comes to levy of taxation it is not the case. Under the ST, till 30th June, 2012 the concept of levying tax on “reverse charge” (RC) had limited applicability as only few types of transactions were covered there under. With effect from 1st July, 2012 the things are going to change dramatically.

1.1  Another interesting development in this respect has been introduction of “Partial Reverse Charge” (PRC) meaning thereby requiring the Service Recipient (SR) to pay ST partially. It should be noted that the term PRC has not been defined in the statute but it has been referred to in the Guidance Note (GN) issued by the Central Board of Excise and Custom (CBEC). In the case of following three services, ST is required to be borne by the SR partially in the proportion as mentioned in Notification No. 30/2012 dt. 20-6-2012.

(a)  renting of a motor vehicle designed to carry passengers on non-abated value to any person who is not engaged in a similar business, or

(b)  supply of manpower for any purpose, or

(c)  service portion in execution of a works contract;

1.2  Applicability of these provisions does not depend only on the nature of service but to “who” and by “whom” as well. Looking to these conditions, following three factors are important for determining applicability of PRC.

a)      Nature of the service

b)     Status of Service Provider (SP) and

c)      Status of SR.

How PRC will operate?

2.0       CBEC says as follow:

“The service provider shall issue an invoice complying with Rule 4A of the ST Rules. Thus the invoice shall indicate the name, address and the registration number of the service provider; the name and address of the person receiving taxable service; the description and value of taxable service provided or agreed to be provided; and the service tax payable thereon. As per clause (iv) of sub-rule (1) of the said rule 4A “the service tax payable thereon’ has to be indicated. The ST payable would include service tax payable by the service provider”.

2.1  It means that SP shall mention the nature and type of service in the invoice. What will happen if the SP is not having any tax liability? Naturally, he will not refer to whatever has been stated above. In that case, how SR will comply with the provisions? According to CBEC, “the liability of the service provider and service recipient are different and independent of each other”, SR will have to determine nature of service and apply the provisions of ST accordingly.

Nature of Service

3.0  As explained above, it is the duty of the SR to determine correct nature of service received, determine provisions relating to abatement, valuation etc. and pay the ST accordingly. It means that if the SP makes any mistake in determining nature of service provided, SR cannot have an excuse that he has followed the description given on the invoice issued by SP. SR will have to apply his judgement and determine the liability.

Status of SP

4.0   Status of SP will affect SR in two ways.

a) SP’s nature of entity i.e. Proprietary firm/ Partnership Firm etc.

4.1 In some of the cases PRC is applicable to services provided by Proprietary firm, Partnership firm etc. It is not applicable to the same type of services provided by corporate bodies. Why? Looking to the justification provided in Guidance Note, one can assume that all the corporate assesses are honest and discharge their tax liability. The problem arises in the case of proprietary firm and partnership firm only.

b) SP’s nature with respect to applicability of ST

4.2  Here, SP’s nature with respect to tax liability will be determining factor i.e. whether SP is Small Service Provider (SSP) or not. If it is SSP, there will not be any tax liability for him. A question will arise herein how will the PRC mechanism work? If SP is not required to pay ST, naturally there is no question of SR paying the ST. However, it is not so. According to CBEC, even in such cases, SR will have to pay ST for availing such services. Read the following explanation by CBEC.

“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.”

4.3 According to CBEC, the tax liability of SP and SR are different and independent. Yes, they are different. However, it is “independent” in what respect? Is the tax liability of SR not dependent on nature and type of service provided by SP? If it is so, should it not get the same tax treatment as in the case of SP?

Status of SR

5.0 Status of SR will impact in two ways viz.

a) SR’s nature of entity i.e. Proprietary firm/ Partnership Firm etc.

5.1 In some of the case PRC is applicable to services provided to corporate bodies only.

b)  SR’s nature with respect to applicability of ST

5.2 An interesting issue will arise here i.e. whether status of SR can make any difference? What will happen if SR is not required to pay any ST as he is not providing any services at all or SR is SSP as his value of service is less than Rs. 10 lacs. Whether such SR will have to pay ST? Looking to the provisions of the Finance Act, it appears that SR will have to pay ST. This is for the reason that SR is a business entity. This will have serious implications for various small business entities carrying on small business and more particularly retail trading business. As we shall see later on, the most challenging compliance will be in the case of Works Contract (WC) Service.

Allowance of CENVAT Credit

From the Perspective of SP

6.0 As far as SP is concerned, he will be in a somewhat comfortable position, as his liability to pay ST will be lower. It is true that in few cases, it may turn out to be lower than entitlement of CENVAT Credit (CCr). For such cases, provision has been made in Rule 5B of CENVAT Credit Rules (CCR) for claiming refund of excess CCr. In majority of the cases, it will not pose any problem as the quantum of CCr is permitted in such a way that it forms miniscule part of the total tax liability.

From the Perspective of SR

6.1 Following scenarios can be visualized for SR.

a) SR being liable to pay Excise Duty / ST

6.2 In such cases, there should not be problem as the amount paid by SR will be permitted as CCr subject to compliance of various conditions laid down therein.

b) SR being SSP or a Retail Trader

6.3 The most problematic cases are of SSP and Retail Trader. In such case, as we have seen, PRC will apply. However, amount of tax so paid will not be permitted as CCr. It should be noted that the amount paid by SR is not in discharge of liability as “Output Service Provider” (OSP). Hence, the question of claiming the said amount as refund does not arise.

6.4    Secondly, Rule 3(1) of CCR allows CCr by provider of OS. It reads as “ provider of output service shall be allowed to take credit of …”. What is output service? Definition of the term OS in clause (p) of Rule 2 of CCR specifically exclude “a service where the whole of service tax is liable to be paid by the recipient of service.” Thus, amount paid by SR cannot be considered as payment of tax towards provision of OS.

6.5    Thirdly, rule 4(7) of CCR provides for credit in respect of input service only. What is input service? As per Rule 2(l) of CCR “Input Service” means any service “used by a provider of out put service for providing an output service”. In the instant case, tax paid by SR is not input service and hence it is not permitted to be claimed.

Payment of ST

At what point of time SR and SP will be required to pay the ST?

7.0 Timing aspect for the payment of ST will have to be examined in both the cases from different perspective.

Payment of ST by SP

7.1 In the case of SP, it will be an output service. Hence, Rule 3 of PoTR will apply. In terms of Rule 6 of Service Tax Rules (STR), it is required to be paid by 5th of the next month / quarter depending upon nature of SP.

Payment of ST by SR

7.2. A problem will arise in the case of SR. In such cases, SR will be making payment of ST in two ways i.e. direct and indirect. Under the direct method he will be discharging ST liability as SR. As per amended Rule 7 of Point of Taxation of Rules (PoTR), Point of Taxation (PoT) in such cases is required to be computed with reference to the date on which payment is made. Therefore, ST liability will have to be discharged by SR by 5th of the next month / quarter in which the payment has been made to SP.

7.3  Proviso to the said Rule 7 also provides that if the SP is not paid within the period of six months, PoT is to be determined as if Rule 7 does not exist. In that case, Rule 3 of PoTR will apply and due date of payment of ST will be applicable retrospectively. See below the explanation provided in the GN.

10.1.5 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?

Both the service provider and service recipient are governed by the Point of Taxation Rules 2011 in respect of the service provided or received by him. 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 say 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 depending upon the admissibility of benefit under the proviso to Rule 6 of the Service Tax Rules 1994. The service recipient would need to pay tax (to the extent liability is affixed on him) by 5th/6th September 2012.

Whether SR can pay ST by utilising CENVAT Credit?

7.4  It may so happen that SR may be having unutilized CCr. Whether the balance lying therein can be utilized for the payment to be made under PRC? No. Explanation to Rule 3(4) of CCR provides that “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, SR has no option but to make payment of ST and claim the same as CCr thereafter.

What will happen in the cases wherein service has already been provided before 1-7-2012?

7.5 According to GN, in such cases since point of taxation of the service has already been determined and whole liability has been affixed before 1.7.2012, the new provisions will not apply. Merely because payments are being made after 1.7.2012 will not add any additional liability on the service receiver in respect of such services.

Registration by SR

8.0 It may so happen that SR may not be providing any service at all. Therefore, he might not have got himself registered. However, under PRC, the SR will be required to discharge the ST liability. For the said purpose, he will have to get himself registered. In fact, Section 69 categorically requires a person in such cases to get registered. The said section reads as follow:

“Every person liable to pay the service tax ……… shall make an application for registration”

8.1 As can be seen, the liability to get registered is for the person who is liable to pay the ST. It does not differentiate between SP and SR. Therefore, Registration is a must.

Filing of ST-3 by SR

9.0 If SR is required to obtain registration, the question of filing of periodical return i.e. ST-3 will arise. In terms of provisions of Section 70 “every person liable to pay the service tax himself assess the tax due on the services provided by him and shall furnish ………. a return in such form and in such manner…”. Period.

Whether SR can avail exemption limit of Rs. 10 lacs?

10.0     Proviso to the First para of Notification No. 33 relating to basic exemption limit of Rs. 10 lacs for SSP issued provides as follow:

Provided nothing contained in this notification shall apply to

a.       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”

10.1     As can be seen, the SR is not permitted to avail basic exemption limit of Rs. 10 lacs.

“Business Entity”

11.0     In number of cases, PRC is applicable to “business entities”. S. 65B(17) defines it as “any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession;”. A question that arises is whether these provisions are applicable to activities carried on by Charitable Trusts (CT).  It should be noted that CT are not exempt per se. Item No. 4 of Notification No. 25/2012 relating to Exemption provides for it as “Services by an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) by way of charitable activities (CA). Thus, exemption is granted for charitable activities carried on by CT. Clause 2 (k) of the said Notification defines CA as follow:

2. Definitions. – For the purpose of this notification, unless the context otherwise requires, –

(k) (v) advancement of any other object of general public utility up to a value of,-

(a) eighteen lakh and seventy five thousand rupees for the year 2012-13 subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during 2011-12;

(b) twenty five lakh rupees in any other financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year;

11.1     Does it mean that if a CT is not qualified by the above two conditions, will it be subject to PRC? However, it should be noted that clause 2 of the said Notification specifically provides that these definitions are applicable for the restricted purposes of the said Notification only. Therefore, the said definition can not be applied for any other purpose.

Analysis of various entries of RC

12.0     Analysis of various entries falling under RC is given under Tabular form for easy (sic!) understanding.

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

1

Insurance Insurance Agent Any person carrying on insurance business

Nil

100%

Note: SR has to be an insurance company.

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

2

Transportation  of goods by road

Goods Transport Agency (GTA)

Any Factory registered under the Factories Act

Nil

100%

Society registered under the Societies Regi. Act
Co-operative society established by or under any law
Dealer of excisable goods registered under the Central Excise Act
body corporate established under any law
Partnership firm / Association of persons

Note: GTA can be any type of entity i.e. Proprietary Firm / Partnership firm / AoP / Corporate Bodies. However, GTA services should have been rendered to the categories of persons as referred to above.

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

3

Sponsorship by any person Anybody corporate or partnership firm located in the taxable territory

Nil

100%

Note: SR can be of only two types viz. company or partnership firm.

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

4

Arbitral Arbitral Tribunal any business entity located in the taxable territory

Nil

100%

 –

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

5

Legal service Individual Advocate or firm of advocates any business entity located in the taxable territory

Nil

100%

Note: Applicable to all the types of entities i.e. Individual / Proprietary Firm / Partnership firm / AoP / Corporate Bodies. These entities should be “business entities”. Services rendered by an Advocate to an individual not relating to its business are not covered herein.

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

6

Support Service Government or local authority

Nil

100%

 –

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

7

Renting / hiring any motor vehicle designed to carry passenger on abated value i)      any individualii)    HUFiii)  Proprietary firmiv) partnership firmv)   Association of Personslocated in the taxable territory i)           Any company registered under the Companies Actii)         business entity registered as body corporatelocated in the taxable territory

Nil

100 %

Renting / hiring any motor vehicle designed to carry passenger on non-abated value i)       any individualii)      HUFiii)   Proprietary firmiv)   partnership firmv)     Association of Personslocated in the taxable territory i)        Any company registered under the Companies Actii)      business entity registered as body corporatelocated in the taxable territory

60%

40%

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

8.

Supply of manpower for any purpose i) any individualii) HUFiii) Proprietary firmiv) partnership firmv) Association of Personslocated in the taxable territory i) Any company registered under the Companies Actii) business entity registered as body corporatelocated in the taxable territory

25%

75 %

 –

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

9.

Works Contract i)       any individualii)      HUFiii)   Proprietary firmiv)  partnership firmv)    Association of Personslocated in the taxable territory i) Any company registered under the Companies Actii) business entity registered as body corporatelocated in the taxable territory

50%

50%

Note: WC service provided by a corporate body is not covered herein. Moreover, WC service rendered to Proprietary Firm / Partnership Firm / AoP etc. are not covered.

Here, definition of WC will play an important role. Section 65B (54) defines it as a “contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property”. As can be seen, it covers moveable property as well. By linking the definition of WC with taxability of such transactions as sale of goods, SP will be required to look to its definition under local VAT laws. All the State Governments have drafted VAT laws providing large number of transactions falling into it. For example, in the state of Gujarat, photocopying and printing of stationery is considered as WC. Since such services are very common, there is hardly any businessman not availing it. Does it mean that each and every businessman availing services of photocopying or printing will have to pay ST under PRC? Yes. As explained above, since threshold limit is not available, every businessman will have to get himself registered, pay ST and file ST-3 periodically.

Sl.

No.

Description of service

Provided

Percentage of  ST payable by the person

providing service

Percentage of ST payable by the person

receiving the service

By

to

10 any taxable services i.e. imported any person located in a non-taxable territory any person located in the taxable territory

Nil

100%

Note: This is an interesting item as it differs from all the entries as mentioned above. As far as SP is concerned, it should be provided from outside India. Type and nature of entity of SP is not relevant. Nature of service rendered is also not relevant.

As far as SR is concerned, it is applicable to “any person”. Such a person i.e. SR need not be “business entity”. Does it mean that it will be applicable to any individual importing services for personal use and not for business purposes? Yes, it will be applicable to any individual even though not carrying any business activities. It will be interesting to see how the ST Department trace such transactions and collect tax thereon.

Conclusion

13.0     So far it was believed that ST has made life difficult for SP. However, PRC has made life difficult for SR as well. As all of us know, momentum under reverse is always slow as compared to forward. However, one should not be surprised, if the classic provision of PRC making collection of ST surpassing that of under the forward gear.

(Complied by CA  Pradip R Shah. He is a member of ICAI. He can be approached at pradip@pradiprshah.com. )

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0 Comments

  1. Sumit Kumar Drolia says:

    Whether Educational Trust is a body corporate if trust is receiving service of manpower supply and works contract under reverse charge mechanism.

  2. santosh kumar says:

    Dear Sir,

    Clarify whether we can take the credit of amount which me remitted to CBEC on service taken Against Hire of motor vehicle,Advocate Services,Man power,Civil work etc.if receivable as a credit shall we claim whole the amount as credit or propotionately we need to take the credit.clarify ,

  3. Rishikant bhargav says:

    Sir

    In Partial reverse charge if service provider charge full service tax (12.36%)from service receiver. then in that case what is the liability of service receiver. Pls guide me.

  4. sudesh says:

    i have given buses( contract carriage) on monthly hire charges with driver to my pvt ltd company engaged in providing point to point transportation of passengers as tour operator.Contract carriages providing point to point transportation except for tourism, charter or hire are exempted by notification.

    Is the company liable to pay service tax on hire charges paid to bus owners who are shareholders & directors of the company under reverse mechhanism or they are exempted.

  5. Rajeev says:

    Dear Sir,
    I am working in the Electrical Work contractor company in the Noida . The Current ration Is 50% of Service Receiver Pay and 50 % Service Provider . How can i Put the ST-3 Return Sheet (Work Contrct Is 10000.00 and Service tax is 494.4 and i get the Amount of but Billing is 50% Service Tax Its mine Rs. 10000.00 + ST Rs. 247.20 =10247.20 towards Whoes Amount i put Work Contracts amount i put in the St -3 .

    (2) if any company say u deposited in 100% service tax . What i deposited 100% service tax Yes or no

  6. Harit Goyal says:

    If trust is receiving service of manpower supply, under reverse charge mechanism whether trust is covered or not under business entity registered as body corporate

  7. AFTAB ALAM says:

    When a charitable public educational trust gives a works contract for construction of a

    college to an individual or firm, or company. Is trust covered under RCM

  8. DINESH GUPTA says:

    Sir, If service provider ( say a works contractor) is not paying service tax or we say – he is evadig service tax payment and does not issue invoice as required under service tax act. His turnover is also exceed Rs.10,00,000/- ( the limit available to SSI). Is SR still liable to discharge his liability as per Partial Reverse Charge MEchanism.

    Thanks & regards

  9. CH SYAMA SUNDARA RAO says:

    S.tax liable under reverse charge mechanism 25% of service tax amount will be charged by service provider on amount of contract value. 75% on the service tax will be discharged by the service receiver. Now, we are deducting TDS ( income tax) on gross amount of the service invoice and discharging tds and issuing TDS certificate of Form 16A to the concern service provider. In order to reverse charge mechanism 75% of service tax will be paid by service receiver. whether tds is liable to pay on 75% of s.tax amount also.

  10. m k agrawal says:

    sir pl clarify me what is service tax liability on bill amount of Rs.20000/-in cas of renting of taxi. if service provider does not avail abatement.and what amount of service tax will be paid by service tax provider and what amount of service tax will be paid by service recipient.

    Servic eprovider is an indiviidual and service receipient is Company.

  11. Arpan Shah says:

    The article covers and clarifies all major aspects of reverse charge but there is no clarity regarding the amount of service tax to be charged and mentioned by SP on the face of an invoice. e.g. If a service is valued at Rs.100 and the ratio of remittance is 75:25 (SR:SP),what will be the amount of ST shown on the face of invoice by SP ? Rs. 12.36 or Rs.3.09?

  12. john says:

    Dear Sir,

    This is very informative and useful article. However, we are still confused as to how the new invoices have to be prepared by a service provider. For eg. if we are providing services for Rs. 10,000 for carrying out repairs / maintenance works, how would the invoice show the ST component ??

    After showing the taxable value, i.e Rs. 10,000 – do we compute 12.36% (Rs. 1,236) and state that in the invoice or do we state, say ST payable thereon (@50% by SP) and then proceed to mention the amount as Rs. 618- ?

    kindly clarify / advise.

    thanks

  13. KMB says:

    Dear Mr.Shah,

    When a charitable public educational trust gives a works contract for construction of a college to an individual, under the PRC

  14. M.S.Pujari says:

    Dear sir,

    I have a quarry, if service provider under PRC applicable @ 25% payable than what SP will do whether he charge Service tax in his bill and collect from cliant or only service bill will raise than end of the month he calculate the service tax amount on total bill @ 25% and he paid which one is correct please clarify
    —-Regards
    Pujari

  15. Ravi says:

    Is this applicable for the services provided till 30th June 12 but the bill raised by the service provider during July 12 and accounted after. Also the same expenditure (known liability) has been provided in the books accounts as on 30.06.2012.

  16. vswami says:

    @CA P R Shah
    The readers  may, perhaps, owe it to him for sharing  his fresh ‘ideas’, seemingly founded on his  intimate knowledge of and exposure to cross-border ideas; which , I admit , cannot profess to be equipped with. Be that as it may, to my mind, his rejoinder, granting the authenticity or validity or otherwise of what  he had to add,  stops short of underlining that , after all, the recent changes in SERVICE TAX LAW have their root in the borrowed ideas from across the globe; and our domestic government can claim no credit as its own / innovations.  
    Historically, to one’s limited knowledge, our men in governance,  are  not known to have ever been shy of, or feel  guilty of keep borrowing ideas,  that too without  applying its own  sense of  fair play or  the consequences they entail , directly to our community of taxpayers; and in turn , indirectly, to THE PEOPLE  (in its profound meaning). Thereby, obliging one to modify (an old saying) and say,- many times bitten, but not even once shy.
    Even going by from what the learned CA has now additionally set out, they do not, in my perception or perspective, go to meet my point of view; which, in essence, is against the futility of attempts continued to be made to make the law, not just the service tax law, increasingly complex, thereby paving the way for new avenues to serve as the common irritant namely, – nay a breeding ground for an endless / inconclusive litigation. On this aspect, one will do well to give some serious thoughts to similar ideas, on which concepts such as, – transfer pricing, GAAR, so on,  again borrowed ones, have come to be given the shape of enactments,  in recent times. In doing so, it might be worthwhile, to search for and get to know what has been the practical but gruesome experience of other nations e.g . on ‘transfer pricing law’; to begin with, may suggest  for a study, the US, 

  17. CA Pradip R Shah says:

    Dear Mr. Vswami,
    There is nothing new in these provisions. Majority of these new ideas have been applied in European countries, Australia and New Zealand since long. What is disturbing is it lacks transitional provisions. No time is being given to the taxpayers to understand it. Moreover, the language used is most difficult to understand. There are various operational issues as well. Unfortunately, all these are not being taken into account.

  18. CA Pradip R Shah says:

    Dear Mr. Bisht,

    Yes. Cenvat Cr. will be available to SR subject to compliance of provisions of CENVAT Credit Rules. Refer to point No. 6.2 of my article.

  19. Raj says:

    Pradip Sir, i have two doubts after reading your full article.
    1. In case of PRC, when SP is SSP and SR is also an Individual, Both are not liable to pay tax. 2. In case of GTA, SR is Individual/Partnership Firm, which is not yet registered himself and also not providing any service. What will be Tax liablity in both cases and who will discharge the liabiltiy.

  20. sunil says:

    I think Mr. Pradeep Shah has not considered Mega Exemption notification while defining liability of SR under PRC (specially where ” business entity ‘ is liabile to ST under PRC i.e. Arbital & Legal services) in both cases exemption up to 10 lacs is avaialble to business
    entity.

  21. Rajender Bisht says:

    Respected Sir,

    is cenvat credit of tax paid will be available to service receiver for tax paid under Partial Reverse Charge Mechanism. If No, how additional libaility of service tax falling on service receiver sqaure off in his books?
    PLs help and guide.

  22. vswami says:

    “…. the term PRC has not been defined in the statute but it has been referred to in the Guidance Note (GN) issued by the Central Board of Excise and Custom (CBEC). ….”
    The writer has, as is seen,  spared no pains in making a close study and pinpointing the areas of controversy and the likely harmful consequences  they entail;  particularly the difficulties in store in implementation. 
    The two doubts/posers of the first order arising upfront in one’s mind are these:

    !. How any such new idea / innovation or an obnoxious change in the basic concept (reference is to the discussed ‘reverse’ or ‘partial reverse’ charge mechanism’) be validly brought into force through any  such route i.e. so-dubbed ‘guidance note’ (in a manner of speaking, a dubious backdoor route); instead of through a proper  ‘legislative enactment’ –  in its truest  sense. ?
    2. Do not the referred new mechanisms blatantly cut at the very route of the concept of ‘service tax’ as thus far understood; also, as lucidly explained in the SC judgment in upholding why service tax cannot be struck down as ultra vires the CONSTITUTION ? The faulted introduction of ‘RC’ and ‘PRC’ reminds one of the grandma’s tale, popularly known as ‘monkey justice’; does it not !

    Should one take the cue from or be guided by the wisdom gathered in hindsight, the subject changes  might not possibly be let go; without  the enlightened people – social activists, knocking once again the doors of the SC for challenging the ‘vires’ thereof. Of course, to the delight of the legal fraternity as ever.

  23. vswami says:

    1. According to a plain reading and common understanding of the law on service tax,-
    (A) While service tax is the primary liability of the service provider,- same way as sales tax is that of the seller of goods,- it is , more as a practice, rather than under any specific provision or mandate of the law, recovered from the ‘recipient of service’.
    B) Even as per section Sec. 68(2) of the Act read with Rule 2(d) of the Service Tax Rules, 1994, in the specified situations, the receiver of the services is made responsible for payment of service tax ; that is, one would urge, not to say that the service provider is absolved from the primary liability to service tax.
    2. In this context, one needs to be focused on certain observations in the SC case reported in the media, as per extract below:
    “The service tax levied by reason of services which are offered. The imposition is on the person rendering the service. Of course, it may be indirect tax, it may be possible that the same is passed on to the customer but as far as the levy and assessment is concerned, it is the person rendering the service who alone can be regarded as an assessee and not the customer. This is the only way in which the provision can be read harmoniously.”
    As was further opined that, -”The charge of tax is on the value of services and it is only the person who is providing service can be regarded as an assessee. The rules, therefore, cannot be so framed which do not carry out the purpose of the Chapter (Statute) and cannot be in conflict with the same.”
    The above needs to be closely studied and understood, as that might help and bring to surface some materially valid points having a nexus to the subject topic; besides, on the lurking doubt whether the service provider is at all right in passing on, as a matter of routine, but left unquestioned, the burden of service tax to the ‘serviced’. 
    3. In the subject write-up are  thrown up additional dimensions for a detailed consideration.
    To comment impromptu:
    Apparently, in  the MInistry’s vision, there is no dearth of scope for giving shape to its innovative ideas, howsoever lacking in or in violation of the rudimentary principles of taxation ; in the context herein, of taxation of services.
    The zeal with which tinkering with such principles is resorted to as a matter of routine is extremely objectionable on more than one ground; the first and foremost of them being the resulting consequence of imbalance, uncertainty  and want of clarity/difficulty in understanding the law.
    It gives rise to a gruesome feeling of unrest among the concerned people that what has been happening in the income-tax regime for decades and until recently is of late increasingly happening in the service tax regime as well.
    WITHER good governance, or the desired transparency and accountability, is the supercedingly haunting doubt in the minds of one and all caring to  get to the root of this and other like idiosyncracies leading to afflicting or crippling the day to day life of the society.

  24. CA Pradip R Shah says:

    Dear Dhanesh,

    I am not clear about your query. It may be noted that there is no concept of deduction of ST from payment made to SP.

  25. CA Pradip R Shah says:

    Dear sm
    Yes, you are correct. It is exempt. In this jungle of sections and rules, it had skipped my attention. 
    In fact, on a look at the said clause, a new topic for consideration has emerged.

  26. sm says:

    wrt observation “As far as SR is concerned, it is applicable to “any person”. Such a person i.e. SR need not be “business entity”. Does it mean that it will be applicable to any individual importing services for personal use and not for business purposes? Yes, it will be applicable to any individual even though not carrying any business activities”
    . Apparently, the same would be EXEMPTED by virtue of MEGA EXEMPTION NOTIFICATION (Refer Sl 34(a) thereof)

  27. Dhanesh says:

    If SP is a SSI unit and not having service tax reg. no., and if I being a SR deducts his ST… then at the time of payment which ST no. is to be mentioned.

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