SERVICE TAX
LIABILITY UNDER
REVERSE CHARGE MECHANISM
CA KR RAMANKUTTY FCA
KOCHI
SERVICE TAX IN INDIA
 IT IS A TAX ON RENDERING OF SERVICE INTRODUCED IN 1994 BY
CENTRAL GOVERNMENT
 EXTENDED TO 119 CATEGORIES OF SERVICES BY 2012 JUNE 30th
 2012 WITNESSED A SEA CHANGE IN THE SCHEME OF LEVY
 THE NEGATIVE LIST BASED TAXATION OF SERVICE WAS INTRODUCED
WITH EFFECT FROM 1.07.2012 AND THE SELECTIVE LIST OF TAXATION
WAS ABLOSIHED
 TAXABLE SERVICE IS = TOTAL SERVICES (NEGATIVE LIST +EXEMPTIONS)
 SERVICE
TAX LIABILITY IS TO BE DISCHARGED
PROVIDER . BUT SPECIFIED CASES
SERVICE
BY
THE SERVICE
RECEIVER
HAS TO
DISCHARGE SERVICE TAX LIABILITY –THIS LIABILITY OF THE SERVICE
RECEIVER IS KNOWN AS REVERSE CHARGE MECHANISM (RCM)
ORDER OF DISCUSSION
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THE NEGATIVE LIST BASED SYSTEM OF TAXATION
CHANGE IN THE SYSTEM EFFECTIVE 1.07.2012
THE NEGATIVE LIST
THE EXEMPTIONS
TAX LIABILITY
THE REVERSE CHARGE LIABILITY
VARIOUS SERVICES COVERED
DISCUSSION ON THE SERVICES
THE PRECAUTIONS TO BE TAKEN
TAX PAYMENTS VARIOUS ACCOUNTING CODES
TAX PAYMENTS - EXCESS PAYMENT ADJUSTMENTS
TAX DEFAULT CONSEQUENCES
INTERESEST
PENALTY
TAX ARREAR PAYMENT WITHOUT PENALTY AND INTEREST BEFORE
31.12.2013
• -----------------------------------------------------
TAXATION OF SERVICES
CHANGE IN THE SYSTEM EFFECTIVE 1.07.2012
THE SYSTEM OF TAXATION IN FORCE UP TO 30.06.2013 -THE SELECTIVE LIST
OF TAXATION -119 CATEGORY
THE NEGATIVE LIST BASED SYSTEM OF TAXATION 1.07.2012 –66D
TAX ON SERVICE – SERVICE DEFINED –
ACTIVITY RENDERED FOR A CONSIDERATION
NO CONSIDERATION IN RETURN
SIMPLE RECEIPT OF MONEY – Eg.DONATION FOR AN EVENT.
SPONSORSHIP – CONSIDERATION IN RETURN – IS SERVICE
 TAX LIABILITY HOW ARISES ?
TAX IS TO BE LEVIED ON ALL SERVICES PROVIDED IN TAXABLE
TERRITORY OTHER THAN SERVICES SPECIFIED IN THE NEGATIVE LIST+
EXEMPTED SERVICES [Section 66B] TAXABLE TERRITORY MEANS
INDIA (EXCLUDING J & K)
NEGATIVE LIST OF SERVICES
TAXABLE SERVICE
TAXABLE
TAXABLE
TA
SERVICE =
ALL SERVICES –
[NEGATIVE LIST
+EXEMPTIONS]
ABATEMENT
In the case of services merged with value of material
and value of material is pre dominant , percentages are
fixed in the case of specified services (See Abatement
Notification 26/2012 attached) for the value of materials ,
that can be deducted from the gross value .Technically
called abatement .
This abatement is subject to the condition of non
availment of Cenvat credit .
Liability for payment of service tax – on service
provider - specified cases –> service receiver [PL refer to
Notification 30/2012]
No escape – if the service provider paid the full tax
liability .This is due to the specific provisions in section
68(2) of the Finance Act 1994
TAX LIABILITY ON WHOM
Notification 30/2012 prescribes the different categories of
services where the receiver has full or partial liability.
The tax is to be paid on the basis of invoice issued by the service
provider.
In the case of a service receiver the date of payment of service
tax depends on the time of payment to the service provider . Eg.Bill
paid in July , liability to be discharged in August in the case of
Companies.
 In the case of service provider the time of raising of the invoice
or the time of payment whichever happens earlier. Make payment
on 6th if its is e-payment.
Description of the service rendered has to be mentioned under
the ‘particulars’ in the invoice. How the tax to be remitted and
under what code .? Category in the invoice Need not to be given–>
Circular no .165 – existing codes out of 119 services – 120th code for
not specified ( see the circular in the material )
SERVICE
“Service” was not defined till 1.07.2012
Service is defined service as
service.
 Any activity
For consideration
Carried out by a person for another
And includes declared services
Service does not include:
 an activity that constitutes only transfer in title of goods or
immovable property by way of sale, gift etc. It also does not
include a transfer, delivery or supply of goods which is a
deemed sale.
Transaction in money or actionable claim
Service by employee to employer in the course of
employment.
Fees payable to a Tribunal or Court
CONTRACT EMPLOYMENT CASUAL WORKERS. ETC
Contract employment falls within the meaning of
Service. They are not services provided in the ordinary
course of employment and therefore taxable
Casual workers / contract labour paid on daily wages
Services provided by the worker in the course of
employment (and not taxable).
 Casual workers supplied by the contractor
working under the control and supervision of the
company -manpower supply (reverse charge liability) .
Casual workers employed by a contractor who deploys
them for execution of a contract or for the provision of
service to the client. – Contractor’s Liabilty. [ E-guide ]
THE NEGATIVE LIST AND EXEMPTIONS
THE NEGATIVE LIST OF SERVICES
In terms of section 66B of the Finance Act service
tax will be leviable on all services provided in the
taxable territory by a person to another person for
a consideration other than the services specified in
the Negative list . PL refer to the detailed list .
EXEMPTIONS
Taxable services can be exempted by Government
by issuing emption Notifications. Accordingly
Notification 25/2012 dated 20.06.2012 was issued
exempting 39 services .PL refer to the detailed list
in Notification 25 .
REVERSE CHARGE OR JOINT CHARGE
Service is liability --entire liability or part of
the liability for payment of service tax is fixed on
the service recipient by statute . [section 68(2)
and Notification 30]
If the entire tax of is paid by the service
provider ? Receiver still liable . Take care while
passing the bill.
Service provider is not liable for service taxthe taxable service value being below 10 lakhs ,
the service receiver is not discharged of the
liability on him by notification 30/2012 .
When does the liability falls on the service
receiver ? Payment is the criterion.
.Discussion on some of the services ----
REVERSE CHARGE
• Goods Transport Agency - Receiver -100%
• Specified persons making payment to GTA- liability falls on
the person who makes payment to GTA . Only GTA covered
and not GTO – individual truck owners – Tempo etc
• Tax liability is on 25%of the value (Bill amount) Payments to
tempo , truck owners who are not GTA are not covered under
this category. Accounting for Freight in GL
• Sponsorship –Receiver -100% -- Accounting how
• Sponsorship to any Body Corporate /partnership in the
taxable territory -- taxable at the hands of the sponsor .
Donations are not covered .-What is sponsorship ? Not
defined after 1.07.2013
• Payment by Body Corporate and partnership only is covered .
• Donations / Financial Assistance not covered
• Cenvat credit available -
REVERSE
CHARGE
Renting of motor vehicle designed to carry passengers
Engagement of taxi , hiring vehicles for transportation of employees
are covered . Ambulance …?If no abatement is claimed in the Bill by the
travel agency , liability of service receiver is 40%.....on abated value
100%.
Supply of Manpower /Security services- 75% by receiver
Manpower taxable from 1.07.2012 . Supply of security services taxable
only from 7-08-2012. It has been clarified by Govt . Services provided by
Casual Labour is NOT liable to service tax.- How to distinguish
Manpower from other supply of labour ?
Service Rendered by Directors from 7-08-2012 –100%
Non Executive Directors are covered . Managing Director and Executive
Director who are salaried employees of the Company are not covered .
Sitting fee paid and expenses incurred in attending the meeting like
travelling expenses , hotel accommodation are to be included in the
value of taxable services
Import of service 100%----Expenditure in Foreign currency
Service provider in non taxable territory(outside India) and recipient in
India – liability is on receiver
REVERSE CHARGE
WORKS CONTRACT
Works contract -- a contract to execute a job which
involves supply /usage of material and labour but are
inseparable /indivisible .
Ownership of the goods gets transferred in the
execution of the contract .
If there is no transfer of ownership in the execution of
the contract , it is not taxable as works contract for
service tax .
In the case of works contract 50% of the tax liability is
to be borne by the service receiver .
How the services are valued for the purpose .?
Rule 2 A of the the Service tax (Determination of
Value) Rules 2006 prescribes the method of valuation of
service part in works contract.
VALUE FOR WORKS CONTRACT
REVERSE CHARGE LIABILITY IS ON 50 PERCENT OF THE TAX
Method-1
Taxable service = Gross value – Value of goods on which
VAT paid. Calculate tax on the above value @12.36%.
Method -2
Rule 2A value /abated value:
Original construction :
all types of new constructions, all types of additions,
alterations to abandoned or damaged structures on land
etc., erection commissioning or installation of plant,
machinery or equipment or structures etc.
40% of gross value including material cost is taxableapply the rate (12.36%) Receiver liability is 50% of the tax
WORKS CONTRACT
Maintenance Repair etc ( movable property )
Contracts for maintenance or repair or reconditioning or
restoration or servicing of any goods 70% of the gross amount is the
taxable part. Tax @ 12.36 %. –Receiver’s liability -50%
Goods means – movable property . Eg. Computers – Air
conditioners removable(other than centralised ) etc –AMCs of such
movable goods covered under Reverse Charge .
Maintenance repair Others ( Immovable property).
Maintenance, repair , completion and finishing services such as
glazing, plastering, floor and wall tiling, installation of electrical
fittings of immovable property . 60% of the gross value @ 12.26% Lift maintenance (Movable ?), Building white washing painting
where material is also taken by the contractor is covered here. --liability is 50% on receiver
Contractor not in tax net (< 10LK) – receiver liable for 50% of tax
ALL ABOVE PAYMENTS TO NON CORP ENTITY ONLY TAXABLE – IF
WORK DONE BY A COMPANY –RECEIVER HAS NO LIABILITY
COMMON ERRORS
1. ST-3 Filling up common mistakes :
Gross service charges to be entered .
Deduct non taxable services and arrive at taxable value
and do not enter only the value on which tax is paid .
Non entry of such data in ST-3 --- is usually taken as a
deliberate attempt to avoid tax and tax for the past five year
period is demanded .
If there is liability as service provider and as a service
receiver better use two challans for service tax payment –
one for the amount payable as service provider and the
other as a service receiver. For reverse charge liability
Cenvat credit cannot be used .
2.Tax calculation working & reconciliation of the amount
of taxable service with GL:Always keep working of tax
calculation with reconciliation as to GL figures on monthly
basis wherever possible , to answer the Dept.audit.
COMMON ERRORS
Excess remittance of service Tax: Can adjust the excess in
the subsequent months tax liability . Proper working must
be kept and this should get reflected in the ST-3
Revision of ST-3 Permissible- IF mistakes are noticed
subsequent to filing of the return- revised return can be
filed within a period of 90 days.
Tax not paid: Attracts interest and penalty . Always remit
the tax arrear with interest . The finance Act 2013 has
provided certain stringent penal provisions for tax default .
Therefore utmost care to be exercised while determining
the tax liability .
VCES 2013 SCHEME
TAX ARREAR PAYMENT WITHOUT PENALTY AND INTEREST
BEFORE 31.12.2013 – VCES 2013 SCHEME
Tax remaining unpaid (by mistake) for the period 1.10.2007
to 31.12.2012
can be paid without interest and penalty
if no show cause /no Departmental enquiry is pending as on
1.03.2013 .
 If my mistake KFC omitted to make payment of service tax - can opt for the Voluntary Compliance Encouragement
Scheme 2013 and remit tax arrears without any penalty and
interest.
The scheme is open and option has to be exercised before
31.12.2013—More details refer to FAQ by CBEC recently
released.
ANY QUESTIONS ?
THANKS
• -----------------------------------------------------------• CA.KRRAMANKUTTY FCA, Kochi,
Mob.9020360665
address your queries to
ramankuttyk@yahoo.com cc to FC KFC