J.K.Mittal
FCA, FCS,LLB
Reverse Charge
Presented By
J.K. MITTAL (Advocate)
Chairman, Indirect Taxes Committee, PHDCCI
Co-Chairman, National Council (Indirect Taxes), ASSOCHAM
LL.B.,F.C.A., F.C.S.
NEW DELHI
Ph: 011- 22056635
Fax: 011- 22447420
Email: jkmittalservicetax@gmail.com
J.K.Mittal FCA, FCS,LLB
1
J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
 Notification No. 30/2012-ST, dated 20.06.2012
services have been Notified for the purpose of
section 68(2) for reverse charge purposes .
 Amended w.e.f. 01.07.2012, the Service Tax
Rules, 1994 by Notification No. 36/2012-ST, dated
20.06.2012 to specify the person liable for paying
service tax in respect of such Notified services
under Rule 2(1)(d) of the said Rules.
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J.K.Mittal
FCA, FCS,LLB
Reverse Charge Mechanism
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:—
Description of a service
%age of
service tax
payable by the
provider of
service
%age of service tax
payable by the
recipient of 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
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
Sl.
No.
100%
Contd…
100%
3
Reverse Charge Mechanism
J.K.Mittal
FCA, FCS,LLB
Description of a service
%age of service tax
payable by the
provider of service
%age of service tax
payable by the
recipient of service
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 subclauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance
Act,1994
Nil
100%
Nil
100%
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(a) in respect of services pro-vided 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 pro-vided 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
60%
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%
Sl.
No.
4
J.K.Mittal
FCA, FCS,LLB
Reverse charge on sharing basis for
specified services
SL. NO.
Description of service
Service recipient
Service provider
(a) with abatement
(b) without abatement
100%
40%
NIL
60%
2.
Supply of manpower for any purpose
or Security services
75%
25%
3.
Works contract service
50%
50%
Hiring of a motor vehicle designed to
carry passengers:
1.
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
 (1) Insurance Agent Services
 (2) Goods Transport Agency Services
However, where the person who pays or is liable to pay
freight is located in a non-taxable territory, then the
provider of such service shall be liable to pay service tax.
In other words, in such case, reverse charge mechanism
will not be applicable and goods transport agency shall be
liable to pay tax. Thus, in such case, the said goods
transport agency will be liable to pay 100% service tax,
subject to available abatement/exemption.
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
(3) Sponsorship Services
 In relation to service provided or agreed to be
provided by way of sponsorship to any body
corporate or partnership firm located in the taxable
territory, the recipient of such service.
(4) Service by Arbitral Tribunal
In relation to service provided or agreed to be provided by
an arbitral tribunal to any business entity located in the
taxable territory, the recipient of such service.
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
(5) Legal Service
In relation to service provided or agreed to be
provided by an individual advocate or a firm of
advocates by way of legal services to any business
entity located in the taxable territory, the recipient of
such service.
(6) Support Service by Government or Local
Authority
In relation to support service provided or agreed to be
provided by Government or local authority to any
business entity located in the taxable territory, the
recipient of such service.
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
However, such reverse charge mechanism will not be applicable when the
Government or Local Authority provides following services—
(1)
renting of immovable property,
(2)
services by the Department of Posts by way of speed post,
express parcel post, life insurance and agency services provided to a
person other than Government;
(3)
services in relation to an aircraft or a vessel, inside or
outside the precincts of a port or an airport; and
(4)
transport of goods or passengers;
As per Rule 2(f) of the Service Tax Rules, 1994, “renting of immovable
property” means any service provided or agreed to be provided by renting
of immovable property or any other service in relation to such renting.
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
(7) 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.
(8) Reverse charge on sharing basis for specified
services (Partial Reverse Charge)
(9) Services provided or agreed to be provided by a
director of the company to said company
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J.K.Mittal
FCA, FCS,LLB
Reverse charge on sharing basis for specified services
amendment w.e.f. 07.08.12 see Notification No. 45 &46
Security service means – service related to security of any
property, whether movable or immovable , or of any person, in
any manner and includes the services of investigation, detection
or verification, of any fact or activity. [Rule 2(1)(fa)]
SL. NO.
Description of service
Service recipient
Service provider
100%
NIL
75%
25%
Services provided or agreed to be
4.
5.
provided by a director of the company to
said company
Security services
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
“security agency” means any person engaged in the business of rendering
services relating to the security of any property, whether movable or
immovable, or of any person, in any manner and includes the services of
investigation, detection or verification, of any fact or activity, whether of a
personal nature or otherwise, including the services of providing security
personnel. [Section 65(94)]
“taxable service” means any service provided or to be provided, to any
person, by a security agency in relation to the security of any property or
person, by providing security personnel or otherwise and includes the
provision of services of investigation, detection or verification of any fact or
activity. [Section 65(105)(w)]
Security service means – service related to security of any property,
whether movable or immovable , or of any person, in any manner and
includes the services of investigation, detection or verification, of any
fact or activity. [Rule 2(1)(fa)]
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
As per Explanation-II to Notification 30/2012-ST,
dated 20.06.2012, “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.”
As per Rule 2(g) of the Service Tax Rules, 1994,
“supply of manpower” means supply of
manpower, temporarily or otherwise, to another
person to work under his superintendence or
control.
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge – meaning ‘works contract’
Section 66E(h)
“service portion in the execution of a
works contract”
Section 65 B(54) "works contract" means 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.
For section 66E(b) - “the expression “construction” includes
additions, alterations, replacements or remodelling of any
existing civil structure”
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J.K.Mittal
FCA, FCS,LLB
Works Contract means– Rule 2A of Valuation
Rules
(ii) Where the value has not been determined under
clause (i), the person liable to pay tax on the service
portion involved in the execution of the works contract
shall determine the service tax payable in the
following manner, namely:—
(A) in case of works contracts entered into for
execution of original works, service tax shall be
payable on forty per cent. of the total amount charged
for the works contract;
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J.K.Mittal
FCA, FCS,LLB
Works Contract– Rule 2A of Valuation Rules
(B) in case of works contract entered into for
maintenance or repair or reconditioning or restoration
or servicing of any goods, service tax shall be
payable on seventy percent. of the total amount
charged for the works contract;
(C) in case of other works contracts, not
covered under sub-clauses (A) and (B), including
maintenance, repair, completion and finishing
services such as glazing, plastering, floor and wall
tiling, installation of electrical fittings of an immovable
property , service tax shall be payable on sixty per
cent. of the total amount charged for the works
contract;
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J.K.Mittal
FCA, FCS,LLB
Works Contract– Rule 2A of Valuation Rules
Explanation 1.—For the purposes of this rule,—
(a) “original works” means—
(i)
all new constructions;
(ii) all types of additions and alterations to
abandoned or damaged structures on land that are
required to make them workable;
(iii) erection, commissioning or installation of
plant, machinery or equipment or structures, whether
pre-fabricated or otherwise;
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
(a) Non-applicability of Partial Reverse Charge
The above-mentioned Reverse Charge Mechanism on three
taxable services is not applicable in all cases. It shall not apply
in following cases:
(i)
when such services are provided by a company
or a body corporate to another body corporate.
(ii)
when such services are provided by a company
or a body corporate to an individual or a partnership firm 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 sub18
contract of service of renting of motor vehicle.
J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
(b) Partial Reverse Charge is applicable in limited cases
The above-mentioned Reverse Charge Mechanism on three
taxable services is applicable in following cases:
(i)
when such services are provided by any
individual to a business entity registered as body corporate
(ii)
when such services are provided by any HUF to
a business entity registered as body corporate
(iii)
when such services are provided by any
partnership firm (whether registered or not) to a business entity
registered as body corporate
(iv)
when such services are provided by any AOP to
a business entity registered as body corporate
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
Clarification by Government
10.1.2 What does a service provider need to indicate on
the invoice when he is liable to pay only a part of the
liability under the partial reverse charge mechanism?
10.1.3 If the service provider is exempted being a SSI
(turnover less than
Rs. 10 lakhs), how will the reverse charge mechanism
work?
10.1.4 Will the credit of such tax paid be available to the
service recipient?
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
Clarification by Government
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?
10.1.6 How is the service recipient required to calculate
his tax liability under partial reverse charge mechanism?
How will the service recipient know which abatement or
valuation option has been exercised by the service
provider?
10.1.7 Is the reverse charge applicable on services provided and
complete before 1.7.2012 though payments were made after 1.7.2012?
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J.K.Mittal
FCA, FCS,LLB
Mechanism and implication of expansion of
reverse charge
Apprehension of Trade & Industry
adversely affect the small and medium enterprises and in
long run
increase in the paper work and compliance work, which will
of course put additional cost on the service recipient
put more pressure on the existing manpower of the
Department
serious problem both for the Department and the taxpayer in
the reconciliation of service tax payment qua the same
transaction
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J.K.Mittal
FCA, FCS,LLB
Refund of Cenvat Credit to the service provider providing services, on
which service tax is payable on reverse charge sharing basis
In view of the fact that certain percentage of the service tax
shall be paid by the service recipient. Keeping in view the
same, by Notification No. 28/2012-CE (NT), Cenvat Credit
Rules have been amended and Rule 5B has been inserted to
provide that if such a service provider is unable to utilize the
Cenvat Credit on input and input services, he shall be allowed
refund of such unutilized Cenvat Credit, subject to the
procedure, safeguards, conditions and limitations, as may be
specified by the Board by issuing Notification. Therefore, the
Board would issue the Notification giving the detailed
procedure and conditions for seeking the refund by the service
provider of three specified services, where service tax is to be
paid on sharing basis on reverse charge.
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In the words of Mahatma Gandhi
“You must not worry whether the desired
result follows from your action or not, so
long as your motive is pure, your means
correct”
………Thank you………..
J.K.Mittal FCA, FCS,LLB
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