1. Freight paid/payable to Goods Transport Agency (GTA)

1.1    Does individual/proprietorship firm is liable to pay service an When tax under reverse charge?

An Individual or a proprietorship firm is liable to take service tax registration and pay service tax under reverse charge only if:-

i. It is registered as a dealer of excisable goods under Central Excise Act, 1944; or

ii. It’s a factory registered under or governed by the Factories Act, 1948.

0therwise, reverse charge is not applicable. It means, when RCM is not applicable, and freight is paid by an individual1proprietorship firm, then the service tax thereon, shall be paid by the GTA itself. So, depending on applicability of RCM, either service provider (GTA) or service receiver shall pay service tax.

1.2  Transportation of Exempted Goods:

No service tax is payable by anyone, if freight is paid for the transportation of the following exempted goods:-

  • agricultural produce and rice;
  • foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;
  • chemical fertilizer and oilcakes;
  • newspaper or magazines registered with the Registrar of Newspapers;
  • relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or
  • defence or military equipments

1.3      Freight  paid for low value consignments:

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If the amount of freight paid for each consignment is upto Rs. 750/- only, then the same is always exempted from payment of service tax.

If the amount of freight paid for each consignment is between Rs. 750/- and Rs. 1500/-, then the same is exempted from payment of service tax if the same is being transported in a single goods carriage.

If the amount of freight paid for each consignment is in excess of Rs. 1500/-, then the same is not exempted from payment of service tax.

2. Payment to Advocate for Legal Services:

If an individual/proprietorship firm being a business entity, which had a turnover exceeding Rs. 10 Lacs in the preceding financial year, has paid any amount to an individual advocate or a firm of advocates or arbitral tribunal, for availing legal service, then reverse charge is applicable.

Legal Service means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.

As per law, even if such person pay a meagre amount of say Rs. 500 to an advocate for say filing income tax/sales tax return, then reverse charge is applicable and the liability to pay service tax thereon @ 12.36% is on the service receiver!!!

Note: Payments made to Chartered Accountants, Cost Accountants, Company Secretaries, Consultants, etc for any service including legal service is not covered under reverse charge.

3. Import of Service:

If any payment is made by any person (including proprietorship firm) located in taxable territory, in respect of any taxable service received from a person who is located in a non-taxable territory, full reverse charge is applicable and service tax @ 12.36% is payable by the service recipient.

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Manoj AgarwalAuthor    : Manoj Agarwal

Address  : Ganpati Campus, Lal Building Road, Rourkela – 769012

Contact   : +91-9937041788

E:mail      : ServiceTaxExpert@yahoo.com

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8 responses to “Reverse Charge Mechanism For Individual/Proprietorship firm”

  1. Naimish says:

    Sir, you are saying that “If an individual/proprietorship firm being a business entity..” then the reverse charge will applicable if the turn over is exceeding Rs.10,00,000, but in the definition of business entity itself excluded the individual.

  2. ankur says:

    sir we r a proprietor firm. we purchase coal from outside states r we liable to pay service tax. we don’t know whether our transporter is paying tax or not. kindly suggest.

    • BHAGWAT LAXMAN KHACHANE says:

      sir we r a proprietor firm. we purchase coal from outside states r we liable to pay service tax. we don’t know whether our transporter is paying tax or not. kindly suggest.

  3. Ravinder says:

    Kindly advise, if a corporate is having retainer fee consultants in legal department, having law degree and services provided by the consultants is other than representation before any court, tribunal or authority, is service tax under reverse charge legal consultancy services is applicable

    The services provided by consultants are mainly drafting agreements and other documents etc

  4. S Agarwal says:

    Is service tax paid on reverse mechanism an allowable expenditure under the Income Tax Act, 1961? If yes, then please mention the section number under which the same is allowed.

  5. sanjay dutta says:

    Manoj Sir,
    While going thru balance sheet of a company, it is noticed that there is difference in debit-credit account of the manufacturing company. the assessee debited more amount from party’s account in Debit account and credited less in CREDIT account (Under freight charge collected), as shown separately in the excise invoice). whether differential amount is liable for service tax or Central Excise duty and please quote the relevant rules also.

  6. VENU GOPAL BANGARD says:

    First is carriage wise : –
    Which says that amt charged for transportaion in single carriage should not exceed 1500

    Then is consignee wise :-
    That is amt charged for transportation for a single consignee does not exceed 750.
    ex.
    A carriage carry 16 consignment (all belonging ) to different person at freight 400.

    Since the amt charged exceeds 1500 but as all consignment belongs to different person and gross amt charged does not exceed 750 from a single consignee
    Hence same shall be still exempt .

  7. Ankit Mittal says:

    I doubt that if freight for more than one consignment in 1 goods carriage is between 750 to 1500 it is exempt.

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