Reverse/ Joint Charge Mechanism in Service Tax
- An Overview
CA Khushboo Bothra
RECENT AMMENDMENTS IN SERVICE TAX ON 15TH November, 2013
Background:
 Service Tax is an indirect tax. Traditionally, the service provider collects service tax on bills raised
on the service recipient and deposits it into the Government Exchequer. Hence, the liability to
pay service tax falls on service provider u/s 68(1). However, there is an exception provided to
this rule by Section 68(2) wherein the Central Government can specify services where the
service recipient is also liable to pay service tax to Govt either wholly or partly.
 The Reverse Charge concept was introduced in Service Tax vide the Budget of the year 2005-06.
At that point there was only one service which was covered under Reverse Charge. However,
with the passage of time this list has been expanded and at present this list contains 11 services
into which covers both Reverse Charge and Joint/Partial Reverse Charge.
Services Covered under Reverse/ Joint Charge:
 By notification 30/2012 dated 20th June, 2012 as amended by notification 45/2012 dated 7th
August, 2013, the Central Government has notified the services and the extent of service tax
payable thereon by the service tax recipient under Reverse/ Joint Charge Mechanism.
 List of Services covered under Reverse/ Joint Charge is as under:
Sl.No Description of
service provided or
agreed to be
provided
By an insurance
1
agent
2
3.
Category of
Service
provider
Category of
Service
Receiver
Any person
Any person
carrying on
insurance
business
Specified
Person
By a GTA in respect Any person
of transportation of
goods by road
By way of
Any person
sponsorship service
Body
corporate or
% to be
paid by
Service
provider
Nil
% to be paid by
Service Receiver
Nil
100%
Nil
100%
100%
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Reverse/ Joint Charge Mechanism in Service Tax
- An Overview
CA Khushboo Bothra
partnership
firm located
in the taxable
territory
Any business Nil
entity
located in
the taxable
territory
4.
By way of legal
services
Individual
advocate or a
firm of
advocates
5.
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
Services 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
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
By way of supply of
manpower for any
purpose or security
service
Service portion in
Government or
local authority
Any business
entity
located in
the taxable
territory
Nil
100%
By any
individual, HUF
or partnership
firm (whether
registered or
not), AOP
located in the
taxable territory
A business
entity
registered as
a body
corporate,
located in
the taxable
territory
Nil
100%
-Do-
-Do-
60%
40%
Do
25%
75%
Do
50%
50%
6.
7.
8.
9.
100%
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Reverse/ Joint Charge Mechanism in Service Tax
- An Overview
CA Khushboo Bothra
execution of works
contract
10.
Any taxable
services
11.
By a director of a
company
By any person
who is located
in a non-taxable
territory
Any person
located in
the taxable
territory
The said
company
Nil
100%
Nil
100%
Note:
The specified persons in case of GTA services are as follows:
i.
Any factory registered under/ governed by the Factories Act, 1948
ii.
Any society registered in India
iii.
Any cooperative society established by or under any law in India
iv.
Any dealer of excisable goods, who is registered under the Central Excise Act, 1944 or the rules
made there under
v.
Any body corporate
vi.
Any partnership firm including AOP.
Services specified in sub-clauses (i), (ii) & (iii) of clause (a) of section 66D of the Finance Act,1994 are:
i.
Speed post, express parcel post, life insurance and agency service provided by department of
post
ii.
Services in relation to aircraft or a vessel, inside or outside the precints of a port or airport by
Government
iii.
Transport of goods or passenger by Government.
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Reverse/ Joint Charge Mechanism in Service Tax
- An Overview
CA Khushboo Bothra
Practical Issues:
 Benefit of Threshold Limit of Rs 10 Lakhs
Notification No 33/2012 dated 20th June, 2012 exempts taxable services of aggregate value not
exceeding ten lakh rupees in any FY from the whole of the service tax leviable thereon under section
66B of the said Finance Act. Provided that nothing contained in this notification shall apply to,(i) taxable services provided by a person under a brand name or trade name, whether registered or
not, of another person; or
(ii) 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.
Hence, benefit under Notification 33/2012 is not available to the service recipient.
 Registration
Every person liable to pay service tax shall get himself registered u/s 69 of the Finance Act, 1994
read with Rule 4 of Service Tax Rules, 1994 within a period of thirty days from the date on which the
service tax under this Act is levied.
 Filing of Returns
As per Section 70(1) every person liable to pay the service tax shall himself assess the tax due on the
services provided by him and shall furnish to the Superintendent of Central Excise, a return in such
form and in such manner and at such frequency and with such late fee not exceeding twenty
thousand rupees, for delayed furnishing of return, as may be prescribed.
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Reverse/ Joint Charge Mechanism in Service Tax
- An Overview
CA Khushboo Bothra
 Payment of Service Tax under Reverse/ JointCharge
According to Rule 3(4) of Cenvat Credit Rules, 2004, CENVAT credit may be utilized for payment of::
a) any duty of excise on any final product; or
b) an amount equal to CENVAT credit taken on inputs if such inputs are removed as such or after
being partially processed; or
c) an amount equal to the CENVAT credit taken on capital goods if such capital goods are removed
as such; or
d)
an amount under sub rule (2) of rule 16 of Central Excise Rules, 2002; or
e)
service tax on any output service
Thus, liability under reverse/ joint charge has to be mandatorily discharged in cash.
 Point of Taxation
a) Where the service recipient makes payment to service provider within 6
months, at the
time of such payment;
b)
Where the service recipient fails to pay the service provider within 6 months, at the time of
such payment:

at the time of raising the invoice, where such invoice is raised within 30 days of
completion of service

in any other case- at the time of completion of service.
 CENVAT Credit on Tax Paid under Reverse/ Joint Charge
In terms of provisions of Rule 4(7) of CCR, 2004, in case of an input service where the tax is paid
on reverse charge by recipient of the service, the CENVAT Credit in respect of such input service
shall be allowed on or after the day on which payment is made of the value of input service and
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Reverse/ Joint Charge Mechanism in Service Tax
- An Overview
CA Khushboo Bothra
the service tax paid or payable as indicated in invoice, bill or, as the case may be, Challan
referred to in rule 9.
In terms of provisions of Rule 4(7) of CCR, 2004, Cenvat credit of tax paid under reverse/ joint
charge mechanism can be claimed on the basis of challan evidencing such payment.
 Refund of Unutilsed CENVAT Credit to Service Receiver
The newly inserted Rule 5B Cenvat Credit Rules, 2004 reads as:
“A provider of service providing services notified under sub-section (2) of section 68 of the
Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for
payment of service tax on such output services, shall be allowed refund of such unutilised
CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified
by the Board by notification in the Official Gazette.”
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