Bimal Jain, FCA, ACS, LLB

The Union Budget 2012 has proposed multiple changes in Service Tax. One of the important aspects of burden of tax liability under Reverse Charge concept has also been proposed to be replaced from existing provisions.

Applicability of New Reverse Charge Mechanism

According to Notification No 15/2012-ST dated 17.03.2012, which supersedes notification no. 36/2004-ST dated 31.12.2004, the proposed Reverse Charge Mechanism will be made applicable from the date on which Section 66B of the Finance Act,1994 comes into force i.e. 1-7-2012.

Difference between Notification no. 15/2012-ST dated 17.3.2012 & Notification no. 36/2004-ST dated 31.12.2004

Under the erstwhile Notification no. 36/2004-ST, the following services were notified – telecommunication service, general insurance business, insurance auxiliary services, services provided from abroad, goods transport agency services, sponsorship services. But, under new notification no. 15/2012-ST, telecommunication service, services provided from abroad and insurance auxiliary services have not been mentioned.

However, for the purpose of import of services, separate Rule namely “Place of Provision of Services Rules, 2012” have been framed & put in the public domain for suggestions & feedback from all stakeholders of Trade & Industry. Further, Rule 7 of the Point of Taxation Rules, 2011 is amended, which state that Point of taxation is date of payment 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 Finance Act, 1994. Furthermore, it is provided that, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist i.e. Point of taxation would earliest of date of invoice or date of service, which will result in dispute of interest that may be demanded by the Service tax dept. This issue is under debate since the day of implementation of the Point of Taxation Rules, 2011.

Further, there are following three services where in both the service provider i.e. Individual or HUF or Proprietary or partnership firm or AOP or LLP and the service receiver i.e. Body Corporate, liable to pay service tax to the extent of % as are mentioned in their respective column:.

Sl. No Description of Service Service Recipient (Body Corporate) Service Provider (Individual, Firm, LLP)
1 Hiring of Motor vehicles designed to carry passenger(a)with abatement(b)without abatement 100%40% NIL60%
2 Supply of manpower for any purpose 75% 25%
3 Works contract service 50% 50%

Furthermore, please refer details and applicability of new reverse charge mechanism in case of all the services as mentioned in the table below:-

Description of a service Service provider Service receiver Percentage of  service tax payable by the person providing service Percentage of service tax payable by the person receiving the service
Insurance Servicesin respect of services  provided or agreed to be provided  by an insurance agent to any person carrying on insurance business Insurance agent Business man carrying on insurance business Nil 100
GTAin respect of services  provided or agreed to be provided  by a goods transport agency in respect of transportation  of goods by road Goods transport agency Consignor or Consignee is specified person Nil 100
Sponsorshipin respect of services  provided or agreed to be provided  by way of sponsorship Any person Body corporate or partnership firm Nil 100
Arbitral Tribunalin respect of services  provided or agreed to be provided  by an arbitral tribunal Arbitral tribunal Business entity Nil 100
Advocate Servicesin respect of services  provided or agreed to be provided  by individual advocate Individual advocate Business entity Nil 100
Support Servicein respect of services  provided or agreed to be provided  by way of support service by Government or local authority Government Business entity Nil 100
Service provided from Non-Taxable Territory to Taxable Territory in respect of any taxable services provided or agreed to be provided  by any person who is located in a non-taxable territory and received by any person located in the taxable territory Any person Any person Nil 100

Various other Query & Answer:-

1. Whether Cenvat Credit available of Service Tax paid by Service recipient under Reverse charge: Yes, Service Recipient is allowed to take the credit of the service tax paid by him under reverse charge method on the basis of Challan as being specified under Rule 9(1)(e) of the Cenvat Credit Rules, 2004 provided the same is input service to him.

2. In case where both Service Provider & Service Recipient is liable to pay service tax in following cases:-

–          Hiring of Motor vehicles designed to carry passenger, benefit Analysis needs to be made by Assessee while claiming abatement as cenvat credit will not be available in terms of Notification no. 13/2012-ST dated. 17-3-2012.

–          Supply of Man power services, the service recipient can take credit of the service tax paid by him and payable by the service provider as charged by service provider on his invoice. Further, the Service Provider will take credit of those inputs and input services which are availed by him in course of providing these taxable services.

–          Works Contract Service is already a complicated  issue and valuation of Works contract is amended vide Notification no. 24/2012-ST dated 06-06-2012:

3. To pay service tax on actual service portion of works contract services i.e. Gross Consideration less value of goods & VAT/Sales tax thereon from the gross value.

4. Composition Method: To pay service tax at composite rate

–    Pay Service Tax on 40% value of original work

–     Pay Service Tax on 70% value of maintenance or repair or reconditioning or restoration or servicing of any goods

–     Pay Service Tax on 60% value of all other works contract

5. Point of Taxation for Service tax liability under Reverse Charge Mechanism: Point of taxation is normally the date of payment but, if payment is not made within 6 months from date of invoice then Point of taxation would be date of invoice, which will results in demand of service tax from the month in which invoice is raised. Hence, there might be demand of interest by the Service tax dept on late payment of service tax. Further, it would be pertinent to note that payment of service tax beyond 6 months under reverse charge would not be available as Cenvat credit though it is inputs service for the Service Recipient.

6. Whether small scale exemption of Rs. 10 Lakhs would be available under Reverse Charge Mechanism: No, this will not be available for liability to be paid by Service Recipient under Reverse Charge Mechanism in terms of Notification no. 06/2005-ST dated 01-03-2005. Further, the Service Provider may avail small scale exemption of Rs. 10 Lakhs.

Bimal Jain
FCA, ACS, LLB, B.Com (Hons)
Mobile: +91 9810604563

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  1. SRIRAM says:

    If a SP is an individual and his turn over is less than 10 lakhs,and if he bills a pvt ltd, in that bill is liable for payment of st@25% and whether he has to register him self has a service provider?

  2. Rahul says:

    Please clarify how the invoice pattern wil be?

    1) Invoice will be having full 12% service charged out of that 25% / 50% of the amount will be paid to service provider as the case may be and remaining will be paid to Govt.Service tax amount. OR Invoice will be having only 25% or 50% of the total 12% service tax which will be paid to service provider & the remaining 75% or 50% as the case may be calculated & paid to Govt.Service tax A/c by a receiptant.

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