Simplifying Reverse Charge Mechanism (RCM) under Service Tax

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Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) Preamble: The New Service Laws as amended by Finance Act, 2012 has made some radical changes in the entire structure of service tax laws. One of such area is introduction of Reverse Charge Mechanism (RCM) on some of the services, in which liability has been casted on service receiver to pay service tax even though it has nothing to do with service tax laws. Through this write‐up an attempt is made to understand this Reverse Charge Mechanism (RCM) through Frequently Asked Questions (FAQs) so as to so as have easy understanding of its impact, applicability & scope. In this write‐up, I have restricted myself only to the topic of reverse charge mechanism as defined under new service tax laws and related notification no. 30/2012 and 45/2012 and reference to the other notification and terms wherever required to explain the topic in details. (M) 9998494429 | Email: [email protected] Page 1 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) Background: India’s GDP in the last couple of decades has witnessed steady increase in contribution from service sector. GDP Era of 1950’ Era of 1990’ 2012‐13 (AE) Components Service Sector 28.09% 44.22% 56.50% From the above it is clear that, India’s GDP is currently pre‐dominantly governed by service sector which is presently accounting for more than 50% of our total Gross Domestic Product (GDP). Hence government needs to increase the focus on this area so that their tax revenue can be maximized. Tax on services was first introduced in the year 1994, through the insertion of Chapter V in the Finance Act, 1994 and levy was confined to three services, since then, the Act has been amended every year to bring in more services in to the tax net and as on date 119 services are taxable. The Finance Act, 2012, w.e.f. 1st July, 2012 has introduced comprehensive approach for levy of service tax to tax services based on what is popularly known as “Negative List of Services”. It means, if any activity meets the characteristics of a “service”, it is taxable unless specified in the negative list or otherwise exempted by a notification. The negative list comprises of 17 heads of services which are listed in the new section 66D of the Finance Act. (Rs. In Crore) Particulars Year 2011‐12
Year 2012‐13
Year 2013‐14 Actual Revised Estimate Budget Estimates Corporate Tax 322,816 358,874
419,520 Tax on Income 170,343 206,095
247,639 Custom 149,328 164,853
187,308 Excise 145,608 171,996
197,554 Service Tax 97,509 132,697
180,141 Hence, from the above it is clear that now service tax revenue is going to be earning baby for the government in the days to come. (M) 9998494429 | Email: [email protected] Page 2 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) Frequently Asked Questions (FAQs) on Reverse Charge Mechanism (RCM) under New Service Tax law 1)
What is reverse charge mechanism (RCM) under service tax? Ans: In general the liability to pay service tax is on the service provider but central government is empowered u/s 68(2) to notify (a) person other than a service provider (e.g. the service receiver) which can be made liable to pay service tax, and (b) the extent to which service tax would be payable by such person and the service provider. So, in simple terms RCM means the mechanism under which “the liability of payment of service tax under prescribed services has been shifted from services provider to prescribed classes of service receiver.” 2)
Whether service receiver can avail the benefit of SSI exemption while paying service tax under RCM? Ans: NO, the recipient of services can not avail the benefit of SSI exemption notification no. 33/2012 dated 20.06.2012 as the same specifically exclude the person liable to pay service tax under RCM as specified under section 68(2). Hence, service receiver is liable to pay service tax under RCM right from first value of transaction. 3)
Whether service receiver paying service tax under RCM needs to get itself registered under service tax? Ans: YES, as per section 69 “every person liable to pay the service tax under this chapter or rules made thereunder shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the superintendent of central excise.” 4)
What is meaning of business entity and body corporate? Ans: Business entity as per clause 17 of section 65B means “any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession.” Thus, in general charitable organization or government is not business entity. Body corporate has not been defined in the service tax laws but it can be understood to include entity having separate legal existence so, it includes Company & LLP. (M) 9998494429 | Email: [email protected] Page 3 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) 5)
What is meaning of non‐taxable territory and taxable territory? Ans: As per Section 65B(35) the word Non‐Taxable territory means “the territory which is outside the Taxable Territory.” As per Section 65B(52) the word Taxable Territory means “the territory to which the provision of this chapter apply.” As per Section 64(1), this chapter extended to the whole of India except the State of Jammu and Kashmir. As per Section 65B(27) the word INDIA means –  the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution;  its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976.);  the seabed and the subsoil underlying the territorial waters;  the air space above its territory and territorial waters; and  the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof; Hence, Taxable Territory includes, whole of India including SEZ, union territories and high sea oil fields, but does not include states of Jammu and Kashmir. Thus, we can say that Non‐Taxable Territory includes Jammu and Kashmir and foreign countries. 6)
Whether service receiver or provider can avail the abatement to services liable to pay under RCM? Ans: YES, service provider and service receiver can avail the benefits of abatements as given in notification no. 26/2012 dated 20.06.2012 subject to conditions prescribed therein regarding non‐availability of CENVAT in certain services. (M) 9998494429 | Email: [email protected] Page 4 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) 7)
If the service provider is exempted being SSI (turnover less than Rs. 10 lakhs), how will the RCM work? Ans: The liability casted on both service provider and service receiver are statutory liability and are independent of each other. Hence, it might possible that service provider is claiming exemption benefit hence he shall not be obliged to pay service tax but, the service recipient shall have to pay service tax which he is obliged to pay under reverse charge mechanism. 8)
What is the point of taxation for service recipient under RCM? When will he be required to pay the service tax in respect of his liability? Ans: Point of taxation means the point in time when a service shall be deemed to have been provided. Rule 7 Point of Taxation Rules, 2011 states that “persons required to pay tax as recipients of service, shall be the date on which payment is made to service provider. Provided further that, where the payment is not made within 6 months from the date of invoice, the point of taxation shall be the date of invoice.” 9)
What is the position with respect to CENVAT in case of service tax paid under RCM? Ans: In general, as per Rule 4(7) of CENVAT Credit Rules, 2004 the CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received. But, there is proviso to Rule 4(7) which states that “in case of an input service where the service tax is paid on reverse charge by the 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 the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9.” The document required to claim CENVAT Credit by the manufacture or provider of output service or input service distributer, as the case may be, as per Rule 9(1)(e) will be “a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax.” (M) 9998494429 | Email: [email protected] Page 5 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) 10) Which are the services covered under RCM? Ans: The central government has issued notification no. 30/2012‐ST dated 20.06.2012 which is effective from 1.7.2012 and notification no. 45/2012 effective from dated 07.08.2012 under section 68(2) of the Act. No. Description of Services
% of % of service tax service tax payable by payable by SP SR w.e.f. 01.07.2012 (A) Services by an insurance agent to any person Nil 100%
carrying on insurance business (B) Services of transportation of goods by road Nil 100%
provided by GTA (C) Services of by way of sponsorship Nil 100%
(D) Services provided by arbitral tribunal
Nil 100%
(E) Services provided by an Individual advocate or a Nil 100%
firm of advocates by way of legal services (F) Support services provided by Government or local Nil 100%
authority (G) (a) Services by way of renting any motor vehicle Nil 100% designed to carry passenger to any person who is not in similar line of business on abated value (b) Services by way of renting any motor vehicle 60% 40% designed to carry passenger to any person who is not in similar line of business on non‐abated value (H) Services by way of supply of man power
25% 75%
(I) Service portion in execution of works contract 50% 50%
(J) Services provided by any person who is located in a
Nil 100%
non‐taxable territory and received by a person located in taxable territory w.e.f. 07.08.2012 (K) Services provided by a Director of a company to the
Nil 100%
said company (L) Services by way of security services
25% 75%
(M) 9998494429 | Email: [email protected] Page 6 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) (A)
INSURANCE AGENT SERVICES 11) Is there any definition of Insurance Agent under service tax? Ans: Rule 2(cba) defines Insurance Agent as “has meaning assigned to it section 2(10) of the Insurance Act, 1938.” Section 2(10) of the Insurance Act, 1938 defines Insurance Agent as “Insurance Agent means an insurance agent licensed under section 42, who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance.” 12) Who are responsible for payment of service tax in respect of insurance agent services as a service receiver under RCM? Ans: As per notification no. 30/2012, it is person carrying on insurance business is liable to pay service tax under RCM in respect of services received from insurance agent. 13) What is the summarized position with respect to liability of person to pay service tax in respect of insurance agent services under RCM? Ans: The summarized position is as follows; Services Provider (SP) Insurance Agent Service Receiver
Liability (SR) to Pay Person carrying on insurance SR business % of liability 100%
(B) GOODS TRANSPORT AGENCY (GTA) SERVICES 14) What is goods transport agency (GTA)? Ans: As per section 65B(26) goods transport agency means “any person who provides service in relation to transport of goods by road and issue consignment note, by whatever name called.” 15) Who are responsible for payment of service tax in respect of GTA services as service receiver under RCM? Ans: The following persons, which are liable to pay freight & located in taxable territory is required to pay service tax under RCM as service receiver;  Any factory registered or governed by the Factories Act, 1948 (M) 9998494429 | Email: [email protected] Page 7 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI)  Any society registered under the Societies Registration Act, 1860  Any co‐operative society established by or under any law  Any dealer of excisable goods, who is registered under the Central Excise Act, 1944 or the rules made thereunder  Any body corporate established, by or under any law  Any partnership firm whether registered or not under any law including association of persons 16) Whether goods transport agency is liable to pay service tax since 100% liability has been shifted to service receiver? Ans: YES, there are still some situations, in which goods transport agency (GTA) is liable to pay service tax on goods transported to following person,  A person is located in non‐taxable territory  Individual  HUF  Proprietary concern neither registered under excise nor factory act 17) Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of services of goods transport agency? Ans: YES, entry no. 21 provides following exemption in respect of services provided by goods transport agency by way of transportation of;  Agriculture produce  Goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceeds Rs. 1,500.  Goods where gross amount charged for the transportation of all such goods for a single consignee in the goods carriage does not does not exceeds Rs. 750.  Foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salts and edible oil excluding alcoholic beverages  Chemicals 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  Defense or military equipments 18) What is the summarized position with respect to liability of person to pay service tax in respect of GTA Services under RCM? Ans: The summarized position is as follows; (M) 9998494429 | Email: [email protected] Page 8 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) Services Provider (SP) Goods Transport Agency Service Receiver
(liable to pay freight) (SR) Individual
HUF
Proprietary Firm not registered under excise Proprietary Firm registered under excise Partnership Firm
AOP
Company LLP
Liability to Pay % of liability SP SP SP 100%
100%
100%
SR 100%
SR SR SR SR 100%
100%
100%
100%
(C) SPONSORSHIP SERVICES 19) Is there any definition of sponsorship service? Ans: The word “Sponsorship” in section 65(99a) of Service Tax Act before amendment of Finance Act 2012. As per Section 65(99a), Sponsorship “includes naming an event after the sponsor, displaying the sponsor's company logo or trading name, giving the sponsor exclusive or priority booking rights, sponsoring prizes or trophies for competition; but does not include any financial or other support in the form of donations or gifts, given by the donors subject to the condition that the service provider is under no obligation to provide anything in return to such donors.” 20) Who are responsible for payment of service tax in respect of sponsorship services as service receiver under RCM? Ans: The following persons located in taxable territory are liable to pay service tax as service receiver under RCM;  Body corporate, Partnership firm & LLP 21) Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of sponsorship services? Ans: YES, entry no. 11 provides following exemption in respect of sponsorship of following sporting events organized;  By a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone  By Association of Indian Universities, Inter‐University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat (M) 9998494429 | Email: [email protected] Page 9 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI)  By Central Civil Services Cultural and Sports Board  As part of national games, by Indian Olympic Association; or  Under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme 22)
What is the summarized position with respect to liability of person to pay service tax in respect of sponsorship services under RCM? Ans: The summarized position is as follows; Services Provider Service Receiver
Liability % of (SP) (SR) to Pay liability Any person Partnership Firm
SR 100%
Company
SR 100%
LLP
SR 100%
Any person other than SP 100%
Partnership Firm/Company/LLP (D) ARBITRAL TRIBUNAL SERVICES 23) Is there any definition of arbitral tribunal service? Ans: Notification no. 25/2012 (mega exemption notification) defined arbitral tribunal as “the meaning assigned to it in clause (d) of section 2 of the Arbitration and Conciliation Act, 1996.” 24) Who are responsible for payment of service tax in respect of arbitral tribunal services as a service receiver under RCM? Ans: As per notification no. 30/2012, it is only business entity located in taxable territory are required to pay service tax under RCM in respect of arbitral tribunal services. For the definition of the word “business entity” see question no. 4 hereinabove. 25)
Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of arbitral tribunal services? Ans: YES, entry no. 6(a) provides following exemption in respect of services provided by arbitral tribunal to;  Any person other than business entity  A business entity with turnover upto Rs. 10 lakhs in preceding financial year. (M) 9998494429 | Email: [email protected] Page 10 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) 26)
What is the summarized position with respect to taxability and liability of person to pay service tax for arbitral tribunal services under RCM? Ans: The summarized position is as follows; Services Provider Service Receiver
Liability % of (SP) (SR) to Pay liability Arbitral Tribunal Other than business entity
Exempt ‐
Business entity having turnover Exempt ‐
upto Rs. 10 lakh Business entity having turnover SR 100%
more than Rs. 10 lakh (E) LEGAL CONSULTANCY SERVICES PROVIDED BY INDIVIDUAL / PARTNERSHIP FIRM OF ADVOCATE 27) Is there any definition of legal service and advocate? Ans: Notification no. 25/2012 (mega exemption notification) defined legal services as “any services 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.” Whereas, the word advocate defined as “the meaning assigned to it in clause (a) of sub‐clause (1) of section 2 of the Advocates Act, 1961.” 28) Who are responsible for payment of service tax in respect of legal consultancy services as a service receiver under RCM? Ans: As per notification no. 30/2012, it is only business entity located in taxable territory are required to pay service tax under RCM in respect of legal consultancy services received from individual or partnership firm of advocate. For the definition of the word “business entity” see question no. 4 hereinabove. 29) Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of legal consultancy services? Ans: YES, entry no. 6(b) provides following exemption in respect of services provided by individual as an advocate or a partnership firm of advocates by way of legal services to;  An advocate or partnership firm of advocates providing legal services  Any person other than business entity (M) 9998494429 | Email: [email protected] Page 11 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI)  A business entity with turnover upto Rs. 10 lakhs in preceding FY. 30)
What is the summarized position with respect to taxability and liability of person to pay service tax for legal consultancy services? Ans: The summarized position is as follows; Services Provider Service Receiver
Liability % of (SP) (SR) to Pay liability Individual as an Advocate or partnership firm of Exempt ‐
advocate or advocates Partnership firm Other than business entity
Exempt ‐
of advocates Business entity having turnover Exempt ‐
upto Rs. 10 lakh Business entity having turnover SR 100%
more than Rs. 10 lakh Legal services Any person SP 100%
under corporate form (F) SUPPORT SERVICES BY GOVERNMENT OR LOCAL AUTHORITY 31) Is there any definition of support services, government and local authority? Ans: Section 65B(49) defines the word support services as “means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis.” The word government has not defined in the service tax law however Education Guide on taxation of service dated 20.06.2012 defined the word government in point no. 2.4.7 as “includes both Central and any State government” Section 65B(31) defines the word local authority as follows;  Panchayat as referred to in clause (d) of article 243 of the Constitution;  Municipality as referred to in clause (e) of article 243P of the Constitution;  Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund;  Cantonment Board as defined in section 3 of the Cantonments Act, 2006; (M) 9998494429 | Email: [email protected] Page 12 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI)  Regional council or a district council constituted under the Sixth Schedule to the Constitution;  Development board constituted under article 371 of the Constitution; or  Regional council constituted under article 371A of the Constitution; 32) What are exclusion are made in respect of support services from government or local authority? Ans: As per notification no. 30/2012, support services provided by government or local authority which are not covered under RCM are as follows;  Renting of immovable property  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  Services in relation to an aircraft or a vessel, inside outside the precincts of a port or an airport  Transport of goods or passengers 33) Who are responsible for payment of service tax in respect of support services from government or local authority as a service receiver under RCM? Ans: As per notification no. 30/2012, it is only business entity located in taxable territory are required to pay service tax under RCM in respect of support services receives from government or local authority. For the definition of the word “business entity” see question no. 4 hereinabove. (G) SERVICES BY WAY OF RENTING OF MOTOR VEHICLE DESIGNED TO CARRY ON PASSENGER 34) Is there any definition of renting of motor vehicle? Ans: The word rent has not been defined under service tax laws hence we have understand the same in general term. So, the term rent means act of letting out or allowing the use of something for consideration. The expression ‘rent a motor vehicle’ in general terms can be understood as motor vehicle rented for day, week or other contracted time, for fixed sum or according to mileage without transfer of possession and effective control. (M) 9998494429 | Email: [email protected] Page 13 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) 35)
Who are responsible for payment of service tax in respect of renting out motor vehicle designed to carry on passenger as a service receiver under RCM? Ans: As per notification no. 30/2012, it is only business entity registered as body corporate located in taxable territory AND not in similar line of business is required to pay service tax under RCM in respect of renting of motor vehicle services received from individual, HUF, Partnership Firm or Association of Person. 36) What is the summarized position with respect to taxability and liability of person to pay service tax for renting out motor vehicle designed to carry on passenger? Ans: The summarized position is as follows;
Liability % of % of Services Provider Service Receiver
(not in similar line of to Pay liability liability (SP) business) of SP of SR (SR) Abated Value
Individual / HUF/ Company
SR
‐ 100%
Partnership Firm/ AOP LLP
SR
‐ 100%
Any person other than SP 100% ‐ company and LLP Any person other than Individual/ HUF / Any person SP 100% ‐ Partnership Firm / AOP Non ‐ Abated Value Individual / HUF/ Company
Both 60% 40% Partnership Firm/ AOP SP & SR LLP
Both 60% 40% SP & SR Any person other than SP 100% ‐ company and LLP Any person other than Individual/ HUF / Any person SP 100% ‐ Partnership Firm / AOP (M) 9998494429 | Email: [email protected] Page 14 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) (H) SUPPLY OF MANPOWER SERVICES 37) Is there any definition of supply of manpower services? Ans: Rule 2(1)(g) of Service Tax Rules 1994 defined supply of manpower services as “supply of manpower temporarily or otherwise to another person to work under his superintendence or control.” 38) Who are responsible for payment of service tax in respect of supply of manpower services as a service receiver under RCM? Ans: As per notification no. 30/2012, it is only business entity registered as body corporate located in taxable territory are required to pay service tax under RCM in respect of supply of manpower services received from individual, HUF, Partnership Firm or Association of Person. 39) What is the summarized position with respect to taxability and liability of person to pay service tax for supply of manpower services? Ans: The summarized position is as follows; Services Provider (SP) Individual / HUF/ Partnership Firm/ AOP Service Receiver
(SR) Company
LLP
Any person other than Individual/ HUF / Partnership Firm / AOP Any person other than company and LLP Any person Liability to Pay Both SP & SR Both SP & SR % of % of liability liability of SP of SR 25% 75% 25% 75% SP 100% ‐ SP 100% ‐ (I) WORKS CONTRACT SERVICES 40) Is there any definition of works contract services? Ans: Section 65B(54) defined works contract services as “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 (M) 9998494429 | Email: [email protected] Page 15 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) immovable property or for carrying out any other similar activity or a part thereof in relation to such property” 41)
Who are responsible for payment of service tax in respect of service portion in execution of works contract services as a service receiver under RCM? Ans: As per notification no. 30/2012, it is only business entity registered as body corporate located in taxable territory are required to pay service tax under RCM in respect of works contract services received from individual, HUF, Partnership Firm or Association of Person. 42) What in the manner of determination of value of “service portion” in execution of works contract from total contract value? Ans: The manner for determining the value of “service portion” in execution of works contract from the total works contract is given in Rule 2A of the Service Tax (Determination of Value) Rules, 2006. There are two sub‐rules given (i) & (ii) for the purpose of determination of value of “service portion” in execution of works contract for the purpose of charging service tax. For details you may refer the rules. 43) What is the summarized position with respect to taxability and liability of person to pay service tax in respect of service portion in execution of works contract? Ans: The summarized position is as follows; Services Provider Service Receiver
Liability % of % of (SP) (SR) to Pay liability liability of SP of SR Individual / HUF/ Company
Both 50% 50% Partnership Firm/ SP & SR AOP LLP
Both 50% 50% SP & SR Any person other than SP 100% ‐ company and LLP Any person other than Individual/ HUF Any person SP 100% ‐ / Partnership Firm / AOP (M) 9998494429 | Email: [email protected] Page 16 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) (J) SERVICES BY PERSON LOCATED IN NON‐TAXABLE TERRITORY 44) Is there any definition of non‐taxable territory? Ans: For the definition of the word “non‐taxable territory” please refers question no. 5 hereinabove. 45) Who are responsible for payment of service tax in respect of services received from non‐taxable territory as a service receiver under RCM? Ans: As per notification no. 30/2012, any person located in taxable territory is required to pay service tax under RCM in respect to any taxable services received from any person who is located in non‐taxable territory. 46) Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of services received from non‐taxable territory? Ans: YES, entry no. 34 provides following exemption in respect of services received from a provider of services located in non‐taxable territory;  the Government, a local authority, a government authority or an individual in relation to any purpose other than commerce, industry or any other business or profession  an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities  a person located in a non‐taxable territory (K) DIRECTOR SERVICES 47) Is there any definition of director services? Ans: The word director has not been defined under service tax law and rules hence we have to understand the meaning with reference to Companies Act, 1956 wherein section 2(13) defines director as “includes any person occupying the position of director by whatever named called.” 48) Who are responsible for payment of service tax in director services as a service receiver under RCM? Ans: As per notification no. 30/2012 amended by notification no. 45/2012, it is only company in which person is director is required to pay service tax under RCM in respect of services received from director. (M) 9998494429 | Email: [email protected] Page 17 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) 49) Is there any exemption available in respect of director services? Ans: Clause (b) of section 65B(44) which defines the word Service specifically excludes from its scope “a provision of service by an employee to the employer in course of or in relation to his employment.” Hence, from the above it can be concluded that service tax is payable on services provided by non‐executive, nominee and independent directors to the company, however service tax is not payable in case of managing director or wholetime director or executive director, if the director is in full time employment of the company. 50) What is the summarized position with respect to taxability and liability of person to pay service tax for directors services? Ans: The summarized position is as follows; Services Provider (SP) Managing Director or Whole‐Time or Executive Director, if in full time employment Non‐Executive Director or Independent Director or Nominee Director Service Receiver
(SR) Taxability Liability to Pay To company in which Exempt No one
they are director To company in which they are director Taxable SR
(L) SECURITY SERVICES 51) Is there any definition of security services? Ans: Rule 2(1)(fa) of Service Tax Rules 1994 defined security services as “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.” 52) Who are responsible for payment of service tax in respect of security services as a service receiver under RCM? Ans: As per notification no. 30/2012 amended by notification no. 45/2012, it is only business entity registered as body corporate located in taxable territory are required to pay service tax under RCM in respect of security services received from individual, HUF, Partnership Firm or Association of Person. (M) 9998494429 | Email: [email protected] Page 18 of 19 Simplifying Reverse Charge Mechanism (RCM) under Service Tax CA. ANKIT GAJJAR | B.Com, FCA, DISA (ICAI) 53)
What is the summarized position with respect to taxability and liability of person to pay service tax for security services? Ans: The summarized position is as follows; Services Provider (SP) Individual / HUF/ Partnership Firm/ AOP Any person other than above Individual/ HUF / Partnership Firm / AOP Service Receiver
(SR) Company
LLP
Any person other than company and LLP Any person Liability to Pay Both SR & SP Both SR & SP % of % of liability liability of SP of SR 25% 75% 25% 75% SP 100% ‐ SP 100% ‐ Disclaimer: The above study is based on and concluded as per provisions of service tax laws as amended by Finance Act, 2013 and position of service tax laws, rules, notification and circulars as on 20.04.2013. (M) 9998494429 | Email: [email protected] Page 19 of 19 CA. Ankit Gajjar | B.Com, FCA, DISA (M) 9998494429
E‐mail : [email protected]
New Service Tax Reverse Charge Mechanism ‐ Matrix
(As per Notification No. 30‐2012 dated 20‐06‐2012 & Notification No. 45‐2012 dated 07‐08‐2012)
Sr. No.
Following Services
provided or agreed to be provided
Service Provided by followings Persons called
Service Provider (SP)
Conditions
Services Received by following persons called Service Receiver (SR)
Hindu Proprietary Proprietary Partnership Association Company
Firm Undivided of Person
Firm
Firm who is Family who is not (AOP)
(HUF)
registered registered under Excise under Excise
(Note‐1) (Note‐1)
Individual
Portion of Liability
LLP
% of % of Liability of Liability of Service Service Provider
Receiver
(SP)
(SR)
Effective Ser. Tax Rate
Service Provider
(SP)
Service Receiver
(SR)
(w.e.f. 01‐07‐2012)
Goods Transport Agency (GTA) Note ‐ 2
2 Sponsorship Services
Any person Note ‐ 3
3 Arbitral Services
Arbitral Tribunal
Note ‐ 3 & 4
•
•
•
4 Legal Consultancy Services
Individual or Part. Firm of advocate
Note ‐ 3 & 5
•
•
5 Support Services Government or Local Authority
Note ‐ 3
•
•
1
Transport of Goods by Road Renting of Motor Vehicle 6 Services (on abated value)
Renting of Motor Vehicle 7 Services (on non‐abated value)
8
Supply of Manpower Services
•
•
•
3.09%
•
•
Nil
100%
Nil
•
•
Nil
100%
Nil
12.36%
•
•
•
Nil
100%
Nil
12.36%
•
•
•
•
Nil
100%
Nil
12.36%
•
•
•
•
Nil
100%
Nil
12.36%
•
•
Nil
100%
Nil
4.944%
•
•
60%
40%
7.416%
4.944%
•
•
25%
75%
3.09%
9.27%
6.18%
6.18%
2.472%
4.326%
3.708%
2.472%
4.326%
3.708%
•
Individual or HUF or Partnership Firm or AOP
(abated vlaue)
Note ‐ 7
Individual or HUF or Partnership Firm or AOP
Individual or HUF or Partnership Firm or AOP
Note ‐ 3
Note ‐ 8
(i) Actual value
(ii) Abated vlaue in ‐ Original Works
‐ Maint. & Repair
‐ Others
Service Portion in 9 Execution of Works Contract Services Individual or HUF or Partnership Firm or AOP
works contract
10 Any Services Person located in Non‐
Taxable Territory Note ‐ 3
11 Services Director of a company
Note ‐ 3
•
12 Security Services
Individual or HUF or Partnership Firm or AOP
Note ‐ 3
•
•
•
•
•
•
•
50%
50%
•
•
Nil
100%
Nil
12.36%
Nil
100%
Nil
12.36%
25%
75%
3.09%
9.27%
(w.e.f. 07‐08‐2012)
•
Note ‐ 1 : Here in this chart called matrix, it is assumed that, individual and HUF are receiving services for their personal use and not as business entity.
Note ‐ 2 : The recipient of GTA services should be person (i) liable to pay freight and (ii) located in taxable territory.
Note ‐ 3 : The recipient of services should be person located in taxable territory.
Note ‐ 4 : Services provided by arbitral tribunal (i) to any person other than business entity, and (ii) to business entity with turnover upto Rs. 10 Lakhs in preceding FY year are not covered under reverse charge.
Note ‐ 5 : Services provided by individual as an advocate or partnership firm of advocates (i) to any person other than business entity, (ii) to business entity with turnover upto Rs. 10 Lakhs in preceding FY, and (iii) to advocate, or partnership firm of advocates are not covered are not covered under reverse charge.
Note ‐ 6 : The word "Business Entity" as per clause 17 of section 65B means "any person ordinarily carrying out any activity relating to industry, commerce or any other business." so, it covers all persons Note ‐ 7 : The recipient of Renting of Motor Vehicle services should be person (i) not in similar line of business and (ii) located in taxable territory.
Note ‐ 8 : The recipient of Works Contract services should be located in taxable territory and has option to choose valuation method.
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