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| REVERSE CHARGE MECHANISM BRIEF NOTE Reverse charge mechanism imposed by central government on corporate, and other business entities , pls read carefully the provisions and notifications mentioned effective from 01.07.2012 Team friends circle contact at friendscircle@camsa.in or call your regular consultant REVERSE CHARGE UNDER SERVICE TAX First time reverse charge mechanism was introduced in service tax in the year 1997. Initially it was introduced on two services clearing and forwarding agent service and goods transport operators service. , However, some provision were quashed up by Apex court but the government amended the section 68 of finance act and empower the central government to notify the services on which tax will be paid by the recipient. Under reverse charge, the burden of payment of service tax is shifted from service provider to the service recipient. In those two notified services whole of the service tax was shifted to recipient of service vide Notification No. 36/2004 – ST dt 31-12-2004 and Rule 2(1)(d) of Service Tax Rules,1994. By exercising the powers under section 68(2) of the Service Tax Act, the Central Government further issued Notification No. 30/2012-ST, dt 20-06-2012 which came into force i.e. 01-07-2012 (notification in original has annexed in last) wherein the partial reverse mechanism was introduced, in which some other services have been added in addition to the services earlier covered and further in respect of three services it was notified that service tax burden shall not be wholly shifted to service recipient. Certain portion of tax is required to be paid by service recipient by specifying the extent of service tax which shall be paid by such person and the remaining part shall be payable by the service provider. Three notified services were: Works contract service, Manpower supply service and renting of motor vehicle designed to carry service. NOTIFIED SERVICES U/S 68(2) AND THE PERSON LIABLE TO PAY SERVICE TAX AND THE EXTENT OF LIABILITY PAYABLE THEREON Type of service Description of service Burden of Taxability 1.Insurance Agent Services Service provided or agreed to be provided by an insurance agent to any person carrying on the insurance business. Service recipient is liable to pay 100% of service tax. 2. Goods Transport Agency Services Taxable service provided or agreed to be provided by GTA in respect of transportation of goods by road, where the person liable to pay freight is : 1. Any factory registered under Factory Act, 2. Any society registered under Societies Registration Act, 1860 or any other law , 3. Any cooperative society established by or under any law, 4. Any dealer of excisable goods, who is registered under Central Excise Act, 1944 or rules made there under, 5. Any Body Corporate established by or under any law, 6. Any partnership firm , registered or not including association of persons. The person who pays freight will be liable to pay 100% service tax, subject to the available abatement/ exemption. However, where the person liable to pay freight is located in non taxable territory, then the service provider shall be liable to pay whole of service tax, subject to available abatement/exemption. 3. Sponsorship Services Taxable service provided or agreed to be provided by way of sponsorship to anybody corporate or partnership firm located in the taxable territory. Service recipient liable to pay 100% service tax. 4.Service by Arbitral Tribunal Taxable service provided or agreed to be provided by an arbitral tribunal to any business entity located in taxable territory Service recipient liable to pay 100% service tax. 5. Legal Service Taxable service provided or agreed to be provided by an individual advocate or a firm of advocates by way of legal service to any business entity located in taxable territory. As per Rule 2(cca) 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. Service recipient liable to pay 100% service tax. 7. Support services by Government or Local Authority Taxable service provided or agreed to be provided to any business entity located in taxable territory by Government or Local Authority excluding :- 1) Renting of immovable property 2) Services by Department of Posts by way of speed post, expree parcel post, life insurance and agency service provided to a person other than Government, 3) Services in relation to an aircraft or a vessel, inside or outside the precincts of port or an airport, and 4) Transport of goods or passengers. Service recipient liable to pay 100% service tax. 7. Services provided by Directors to the said company Vide Notification No 45/2012-ST, dt 07-08-2012, taxable service provided or to be provided by director (who is not employee of the company) to the said company is taxable i.e. 07-08-2012. Those who are whole time directors, getting remuneration from company will not be covered under service tax. However, those who are nominee director or independent directors, who are not employee of the company and remuneration/sitting fee is paid to them by the company, will be subject to service tax. In such case payment of service tax by company will not be considered as part of sitting fees and hence no violation of Rules under Companies Act regarding limit for payment of sitiing fees. However , service tax will not be applicable on the amount spent by company on arranging car or on food for such directors who attend board meeting. Service recipient i.e. company is liable to pay 100% service tax. However, incident of service tax will be borne by the company or director will be decided on the basis of agreement between them. 8. Services from non –taxable territory to taxable territory Taxable service provided or agreed to be provided by any person which is located in non-taxable territory and received by any person located in the taxable territory. Service recipient liable to pay 100% service tax. 9. Renting of Motor Vehicle designed to carry passenger Taxable service provided by way of renting of motor vehicle to any person who is not in the similar line of business. a) With abatement : Service recipient liable to pay 100% service tax. b) Without abatement : Service recipient 40% Service Provider 60%. 10. Supply of man power for any purpose or security service. Vide notification No 45/2012-ST 07-08-2012 along with manpower supply service, security service is also covered under partial reverse charge mechanism. Service recipient 75% Service provider 25% 11. Works Contract service Service portion in execution of works contract by any individual , Hindu Undivided Family or partnership firms whether registered or not ,including Association of persons located in taxable territory to a business entity registered as body corporate located in taxable territory Service recipient 50% Service Provider 50% Services from non taxable territory to taxable territory In relation to any taxable service provided or agreed to be provided by any person which is located in a non taxable territory and received by any person located in the taxable territory, the recipient of such service. Thus in such case, the recipient will be liable to pay 100% service tax subject to the available abatement or exemption. Non applicability of Partial Reverse Charge (i) When such services are provided by a company or a body corporate to another body corporate. (ii) When such three services are provided by a company or body corporate to an individual or a partnership form or to any other person. (iii) When service of renting of motor vehicle designed to carry passenger is provided by an individual/ partnership firm/HUF/AOP to a body corporate in the similar line of business. In other words, when there is sub contract of service of renting of motor vehicle. ANNEXURE NOTIFICATION 30/2012 IN ORIGINAL [TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] Government of India Ministry of Finance (Department of Revenue) Notification No. 30/2012-Service Tax New Delhi, the 20th June, 2012 GSR.…..(E).—In exercise of the powers conferred by sub-section (2) of section 68 of the Finance Act, 1994 (32 of 1994), and in supersession of (i) notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 15/2012-Service Tax, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 213(E), dated the 17th March, 2012, and (ii) notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 36/2004-Service Tax, dated the 31st December, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 849 (E), dated the 31st December, 2004, except as respects things done or omitted to be done before such supersession, the Central Government hereby notifies the following taxable services and the extent of service tax payable thereon by the person liable to pay service tax for the purposes of the said sub-section, namely:— I. The taxable services,— (A) (i) provided or agreed to be provided by an insurance agent to any person carrying on the insurance business; (ii) provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is,— (a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948); (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; (c) any co-operative society established by or under any law; (d) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder; (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; (iii) provided or agreed to be provided by way of sponsorship to anybody corporate or partnership firm located in the taxable territory; (iv) provided or agreed to be provided by,- (A) an arbitral tribunal, or (B) an individual advocate or a firm of advocates by way of support services, or (C) Government or local authority by way of support services excluding,- (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994, to any business entity located in the taxable territory; (v) provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers to any person who is not in the similar line of business or supply of manpower for any purpose or service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory; (B) provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory; (II) The extent of service tax payable thereon by the person who provides the service and the person who receives the service for the taxable services specified in (I) shall be as specified in the following Table, namely:- Table Sl.No. Description of a service Percentage of service tax payable by the person providing service Percentage of service tax payable by the person receiving the service 1 in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business Nil 100% 2 in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road Nil 100% 3 in respect of services provided or agreed to be provided by way of sponsorship Nil 100% 4 in respect of services provided or agreed to be provided by an arbitral tribunal Nil 100% 5 in respect of services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal services Nil 100% 6 in respect of services provided or agreed to be provided by Government or local authority by way of support services excluding,- (1) renting of immovable property, and (2) services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994 Nil 100% 7 (a) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business (b) in respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business Nil 60% 100 % 40% 8. in respect of services provided or agreed to be provided by way of supply of manpower for any purpose 25% 75 % 9. in respect of services provided or agreed to be provided in service portion in execution of works contract 50% 50% 10 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 Nil 100% Explanation-I. - The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification. Explanation-II. - In works contract services, where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service. 2. This notification shall come into force on the 1st day of July, 2012. [F.No. 334/1/2012- TRU] (Raj Kumar Digvijay) Under Secretary to the Government of India |
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