SERVICE TAX
REVERSE & JOINT
CHARGE MECHANISM
Background
• W.e.f. 16.10.1998, Section 68 of Finance Act, 1994 was
amended to empower Central Government to notify certain
taxable services for which the ‘prescribed person’ will be the
‘person liable for paying service tax’
• Notwithstanding the fact that Hon. Supreme Court in Laghu
Udyog Bharati Vs. Union of India (112) E.L.T. 365 (S.C.)
struck down the provisions as being ultra vires the Act itself
(Finance Act, 1994)
Background
• W.e.f. 16.10.1998, Section 68 of Finance Act, 1994 was
amended to empower Central Government to notify certain
taxable services for which the ‘prescribed person’ will be the
‘person liable for paying service tax’
• Notwithstanding the fact that Hon. Supreme Court in Laghu
Udyog Bharati Vs. Union of India (112) E.L.T. 365 (S.C.)
struck down the provisions as being ultra vires the Act itself
(Finance Act, 1994)
Service Tax Reverse Charge
Import of Service
Insurance Agent Service
Mutual Fund Agent Service
Legal Consultancy Service
Directorship in a Corporate
Arbitral Tribunal Service
Service Tax Reverse Charge
Goods Transport Agency Service
Manpower Supply Service
Sponsorship Service
Lottery Agent Service
Recovery Agent Service
Support Services by Government
Service Tax Partial Reverse Charge
Works Contract Service
Passenger Vehicle Hire Service
Point of Taxation
Rule 7
Reverse Charge - Basic points
• Availment of CENVAT Credit NOT dependent on payment
to Service Provider - Rule 4(7) CCR
• Small Service Provider exemption – Ineligible
• Reverse Charge liability has to be discharged only in Cash
– CENVAT Credit cannot be utilised – Explanation to Rule 3(4)
CCR
• Liability of Service Receiver and Service Provider is
Independent
Reverse Charge - Basic points…
• Liability of Service Receiver and Service Provider is
Independent
• Rashtriya Ispat Nigam Ltd Vs. Dewan Chand Ram
Saran SC 2012 (4) TMI 457
• In case recipient of the service is the person liable to pay
service tax, such recipient can enter into contract with
service provider that burden of any tax under contract
would be borne by service provider
• Umasons Auto Compo Pvt Ltd Vs CCEx CESTAT Mumbai,
2014(2) TMI 100, that once the amount of service tax is
accepted by the revenue from the provider of service of GTA
service , it can not be again demanded from the recipient of
GTA service.
Services of Goods Transport Agency
•WHO is GTA
Section 65B(26) defines a GTA – “means any person who
Provides service in relation to transport of goods by road
and Issues consignment note, by whatever name called”
A
•WHO is Liabile
Consignor or Consignee liable to pay freight who is a
SPECIFIED PERSON
Services of Goods Transport Agency…
Specified persons
• A Factory registered under Factories Act 1948
• Any Society registered under the Society Registration
Act or any other law for the time being in force
• Any Co-operative society established by or under any
law.
• A registered dealer under Central Excise law who deals
in excisable goods.
• Any body corporate established, by or under any law;
• Any Partnership firm whether registered or not under
any law including association of persons.
Services of Goods Transport Agency…
Mega Exemption
Services provided by a goods transport agency, by way of transport in a goods
carriage of,
(a) agricultural produce;
(b) goods, where gross amount charged for the transportation of goods on a
consignment transported in a single carriage does not exceed one thousand
five hundred rupees;
(c) goods, where gross amount charged for transportation of all such goods for a
single consignee does not exceed rupees seven hundred fifty;
(d) milk, salt and food grain including flours, pulses and;
(e) chemical fertilizer, organic manure and oil cakes;
(f) newspaper or magazines registered with the Registrar of Newspapers;
(g) relief materials meant for victims of natural or man-made disasters, calamities,
accidents or mishap; or
(h) defence or military equipments;
(i) cotton, ginned or baled.
Few Important Points
• Bellary Iron and Ores (P) Ltd., MSPL Ltd., Ramgad
Minerals and Mining (P) Ltd. and Sandur Manganese
and Iron Ores Ltd. vs CCE – CESTAT Bangalore 2009
• Transport only by Truck owners is not considered as “GTA”
service; hence no Reverse Charge liability
• Notification No. 31/2012 - Service Tax
• Service provided to an exporter in relation to transport of the
said goods by goods transport agency in a goods carriage
• Condition: The exporter shall have to produce the
consignment note issued in his name
• Form EXP1 to be filed first for availing
• Form EXP2 to be filed every 6 months (within 15 days)
Services of an insurance agent to any person
carrying on insurance business
• Service provider – Businessmen carrying on insurance
agency business
• Service Receiver – Insurance Company
• Scope – Commission & other charges paid by insurance
company to insurance agents
• Rate – Full 14.5% shall be paid by insurance company.
Eg. Life Insurance Agents, General Insurance Business
Agents, Authorized sale centers of two wheelers, four
wheelers and other equipments
Services by way of sponsorship
• Service provider – Any person
• Service Receiver – Body corporate or a partnership firm
located in a taxable territory
• Scope - All types of sponsorships covered excluding
advertisements and certain sports related sponsorships
which are exempted as per mega exemption
notification.
• Rate – 14.5% to be paid by Service Receiver
Services by way of sponsorship…
Exemption based on Mega exemption Notification :
Sponsorship of the following sporting events exempted :
(a) by a national sports federation, or its affiliated federations,
where the participating teams or individuals represent any
district, state or zone;
(b) 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;
(c) by Central Civil Services Cultural and Sports Board;
(d) as part of national games, by Indian Olympic Association; or
(e) under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA)
Scheme;
Services of Lawyer and Arbitral Tribunal
• Service provider – Arbitral tribunal / Individual lawyer /
Firm of Lawyers
• Service Receiver – Any person who is a business entity.
• Scope of service - Advice, consultancy or assistance in
any branch of law, in any manner and includes
representational services before any court, tribunal or
authority.
• Rate – Full Service Tax to be paid by Service Receiver
Services of Lawyer and Arbitral Tribunal…
• If turnover of service recipient is less than Rs. 10 lakhs in
preceding previous year then RCM is not applicable
(Entry 6 of Notification No 25/2012)
• Business entity means “ any person ordinarily carrying
out any activity relating to industry, commerce or any
other business or profession”. Thus, Government,
charitable organization is not ‘business entity’.
• Services for personal litigations, charitable institutions,
religious institutions, schools, Government, etc., are not
covered.
Services of a Company/Corporate director
• Service provider – A Non-executive Director
• Service Receiver – A Company
• Scope - Any payment to non-executive directors
• Rate – Full ST to be paid by Company
• Excluded –
• Executive directors in employment.
• If the Company itself arranges lodging, food, travelling etc.
for the non-executive directors and the bill is raised in the
name of the Company.
Support services received from Government or
local authority
• Service provider – Government or local authority
• Service receiver – Any person who is a business entity
• Scope - "support services" 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;
• Example : Services of police, fire, ambulance etc.
Support services received from Government or
local authority…
Exclusion from Reverse Charge –
• Renting of immovable property service
• Services by the department of post 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 or
outside the precincts of a port or an airport;
• Transport of goods or passengers; or
• Services received from government by a person which is
a non-business entity
Import of Services
• Service provider – Any person
• Service Receiver – Any Person (both business and nonbusiness entities)
• Scope - Any payment for import of taxable services from
any Non-taxable territory. Example: Royalty, Technical
know how fee, Foreign consultancy fee etc.,
• Rate – 14.5% to be paid by the Service Receiver
Import of Services…
Exemption under MEGA Exemption Notification
Services received from a provider of service located in a nontaxable territory by –
(a) Government, a local authority, a governmental authority or an
individual in relation to any purpose other than commerce,
industry or any other business or profession;
(b) an entity registered under section 12AA of the Income tax Act,
1961 (43 of 1961) for the purposes of providing charitable
activities; or
(c) a person located in a non-taxable territory;
Supply of manpower for any purpose & Security
Agency Services
• Service provider – Individual/HUF/Firm
• Service Receiver – Business entity registered as Body
corporate including LLP
• Meaning of “Supply of Manpower” – Defined in Rule
2(g) of Service Tax Rules 1994 – “Means supply of
manpower, temporarily or other wise, to another person
to work under his superintendence or control”
• Rate – 14.5% to be paid by the Service Receiver
Supply of manpower for any purpose & Security
Agency Services…
Scope of services covered
• Payment for services of the staff seconded/deputed
with the company under an arrangement where the
staff remains on the payroll of the original employer
only
• payment for services of staff (not on payroll of the
recipient of service) supplied by an agent/person under
an arrangement where it is placed operationally under
the superintendence or control of the recipient of
service (e.g. housekeeping staff supplied by manpower
agency)
• all security/detective services
Works contract Services
• Service provider – Individual/HUF/Firm
• Service Receiver – Business Entity registered as Body
corporate including LLP
“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, 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
Works contract Services…
Rule 2A of Determination of Value Rules
• Original Works - Material 60%
• Other Works - Material 30%
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
Mega Exemption Notification
• sub-contractor providing services by way of works contract to
another contractor providing works contract services which are
exempt
Renting of Motor Vehicle
• Service provider – Individual/HUF/Firm
• Service Receiver – Business Entity registered as Body
corporate including LLP
• Scope of service - Hiring passenger cars, buses etc.
Renting of Motor Vehicle…
Exemption under Mega Exemption Notification
• Transport of passengers, with or without accompanied
belongings, by
non-air conditioned contract carriage other than radio taxi, for
transportation of passengers, excluding tourism, conducted tour,
charter or hire;
• Services by way of giving on hire – to a state transport
undertaking, a motor vehicle meant to carry more than twelve
passengers;
• Services provided by way of transportation of a patient in an
ambulance
Renting of Motor Vehicle…
Option
Rate of
Service Tax
Abatement
Effective
Service Tax
Service
Receivers
share
Service
Providers
share
Abatement
availed by
Service
Provider
14.50%
60.00%
5.80%
5.80%
0%
Abatement
NOT availed
by Service
Provider
14.50%
0.00%
14.50%
7.25%
7.25%
THANK Q ?
CA Shankara Narayanan V
+91 96000 89209
shankar@sarafchandra.com
shankar@sncassociates.com