FAQ on Reverse Charge, Abatement, Negative List, Place of
Provision of service
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Rajeev Kumar Gupta
Service Tax –Key Points
Introduction
Service tax is a tax levied by the government on service providers on certain service transactions, but
is actually borne by the customers. It is categorized under Indirect Tax and came into existence
under the Finance Act, 1994.
The service provider pays the tax and recovers it from the customer with certain exceptions. Service
Tax was earlier levied on a specified list of services, but in the 2012 budget, its scope was increased.
Services provided by air-conditioned restaurants and short term accommodation provided by hotels,
inns, etc. were also included in the list of services.
It is charged to the individual service providers on cash basis, and to companies on accrual basis.
This tax is payable only when the value of services provided in a financial year is more than Rs 10
lakh. This tax is not applicable in the state of Jammu & Kashmir.
Reverse Charge
Q. What is Reverse Charge?

Generally, Service tax is payable by person providing the service who actually collect the tax
and pays to government.

But Section 68(2) introduced and makes provision for reverse charge i.e. making person
receiving the service, liable to pay tax. Provision can be made that part of tax will be paid by
service receiver and part by service provider or entire by Service Receiver.

Provisions relating to reverse charge are contained in Notification No. 30/2012-ST dated 206-2012. See Appendix 2 for tax of the Notification and which amend from time to time.
Q. How to book Cenvat Credit on Service Tax paid on reverse charge basis?

In case of an input service where service tax is paid on reverse charge by the recipient of
the service, the CENVAT credit in respect of such input service shall allowed on or after the
day on which:
- payment is made on the value of input service and
- Service tax paid or payable as indicated in invoice referred in Rule 9.

Even if Service Provider is liable for payment of service tax in certain portion ie partial
reverse charge then Cenvat Credit can be availed on entire input w.r.t.334/1/2012

Q
Cenvat credit cannot be used to pay tax by service receiver. Service tax as to be paid by cash
only i.e. GAR-7 challan.
What are the services under reverse charge?
♣ Under Partial Reverse Charge (Proportional / Joint)
1. Renting of motor vehicles
2. Manpower supply & security services
3. Works contracts
♣ Under Full Reverse Charge (100%)
1.
2.
3.
4.
5.
6.
7.
8.
Insurance related services by agents
Goods Transportation By Road
Sponsorship
Arbitral tribunals
Legal services
Company director’s services
Services provided by Government / local authority excluding specified services
Services provided by persons located in non-taxable territory to persons located in taxable
territory.
Abatement
Q
What is abatement?


Q
Abatement means that service tax is paid on specified % of amount mentioned on the
invoice.
Input credit cannot availed.
What are the rates of Abatement?
Taxable Service
Partial abatement /
Composition Scheme
Conditions
No Cenvat
10% of amount charged Credit. Invoice
Accommodation
(Abatement Scheme, should be
booking service by
inclusive of
though really it is
tour operator
composition scheme) cost of
accommodation
Air Travel Agent
Relevant
Notification/Rule
Sr. No. 11(ii) of
Notification No.
26/2012-ST dated
20-6-2012.
Option to pay service
tax at flat rate on ‘basic
fare’ @ 0.6% in case of
No restriction
domestic booking and
Rule 6(7) of
on availment of
1.2% in case of
Service Tax Rules
Cenvat credit
international booking –
plus education cess
(Composition Scheme)
Bundled service by Tax on 70% of amount Cenvat credit
way of supply of
charged including fair of input
Sr. No. 4 of
Notification No.
food or any other
article of human
consumption or any
drink, in a premises
( including hotel,
convention center,
club, pandal,
shamiana or any
other place,
specially arranged
for organizing a
function) together
with renting of such
premises
value of goods and
services supplied by
service receiver (to
service provider) under
same or different
contract
services and
26/2012-ST dated
capital goods is 20-6-2012
available.
Cenvat credit
on food items
(covered under
Chapters 1 to
(Composition Scheme) 22 of CETA)
not available.
Cenvat credit
of other inputs
is available.
Chit related
services
Sr. No. 8 of
Tax on 70% of amount
No Cenvat
Notification No.
charged (Abatement
Credit allowed 26/2012-ST dated
Scheme)
20-6-2012.
Financial leasing
and hire purchase
Tax on lease
management fee,
No restriction
processing fee,
on availment of
documentation charges
Cenvat Credit
and administrative fee
plus 10% of interest
Sr. No. 1 of
Notification No.
26/2012-ST dated
20-6-2012
Construction of a
complex, building,
civil structure or a
part thereof,
intended for a sale
to a buyer, wholly
or partly, if value of
land is included in
the amount charged
from the service
receiver
Tax on 25% of amount
charged including fair
market value of all
goods and services
supplied by recipient
(termed as Abatement
Scheme – actually it is
composition scheme)
Sr No. 12 of
Notification No.
26/2012-ST dated
20-6-2012
Cenvat credit
of input
services and
capital goods
can be taken
but not of input
goods
At slab rates prescribed
under rule 6(7B)on
No restriction
Foreign Currency – total gross amount of
Rule 6(7B) of
on availment of
sale and purchase currency exchanged
Service Tax Rules
Cenvat Credit
(Optional Composition
Scheme)
Value is difference
between buying or
No restriction
Foreign Currency –
selling rate and RBI
on availment of
sale and purchase
reference rate (Normal Cenvat Credit
Scheme of valuation)
Life Insurance
Rule 2B of
Service Tax
(Determination of
Value) Rules
3% of net premium
No restriction
(excluding investment
Rule 6(7A) of
on availment of
or savings part, if such
Service Tax Rules
Cenvat Credit
amount is informed to
policy holder) – If not
so informed, 3% in first
year and 1.5% in
subsequent
years(Composition
Scheme)
Lottery ticket
promotion
Rs. 7,000 or Rs. 11,000
per Rs. 10 lakhs of
No restriction
Rule 6(7C) of
tickets printed by State on availment of
Service Tax Rules
lottery (Composition Cenvat Credit
Scheme)
Outdoor caterer
Cenvat credit
of input
services and
capital goods is
available.
Tax on 60% amount
Cenvat credit
excluding State Vat
on food items
(Composition Scheme)
(covered under
(Till 1-7-2012, it was
Chapters 1 to
50%)
22 of CETA)
not available.
Cenvat credit
of other inputs
is available.
Rule 2C of
Service Tax
(Determination of
Value) Rules
Tax payable on 40% of
Renting of motor
amount
No Cenvat
vehicle designed to
charged (Abatement
credit available
carry passengers
Scheme)
Sr. No. 9 of
Notification No.
26/2012-ST dated
20-6-2012
Restaurant service
Cenvat credit
of input
services and
capital goods is
available.
Tax on 40% amount
Cenvat credit
excluding State Vat
of excise duty
(Composition Scheme) on food items
(Till 1-7-2012, it was (covered under
30%)
Chapters 1 to
22 of CETA)
not available.
Cenvat credit
of other inputs
is available.
Rule 2C of
Service Tax
(Determination of
Value) Rules
Renting of hotels,
inns, guest houses,
clubs, campsites or
other commercial
places meant for
residential or
Tax payable on 60% of
amount charged
(Abatement Scheme)
(Till 1-7-2012, the tax
payable was on 50%
amount).
Sr. No. 6 of
Notification No.
26/2012-ST dated
20-6-2012
Cenvat Credit
of input
services
allowable but
no Cenvat
credit of inputs
lodging purposes
Tour operator –
Package tours
(“package tour”
means a tour
wherein
transportation,
accommodation for
stay, food, tourist
guide, entry to
monuments and
other similar
services in relation
to tour are provided
by the tour operator
as part of the
package tour to the
person undertaking
the tour).
and capital
goods
No Cenvat
credit available.
Tax is payable on 25%
of gross amount
Bill to be
charged (Abatement
inclusive of all
Scheme)
charges for the
tour.
Tour operator –
providing services
solely of arranging
or booking
accommodation for Tax is payable on 10%
any person in
of amount charged
relation to a tour (If (Abatement Scheme)
Bill includes cost of
accommodation)
Tour operator –
Other than package
tours and other than
service of booking
Tax is payable on 40%
accommodation
of amount charged
where Bill includes
(Abatement Scheme)
cost of
accommodation
Sr. No. 11(i) of
Notification No.
26/2012-ST dated
20-6-2012
No Cenvat
credit available.
Bill to be
inclusive of
charges for
such
accommodation
Sr. No. 11(ii) of
Notification No.
26/2012-ST dated
20-6-2012
No Cenvat
credit available.
Sr. No. 11(iii) of
Notification No.
Bill to be
26/2012-ST dated
inclusive of all
20-6-2012
charges for the
tour
Transport of
goods by rail
Sr. No. 2 of
Tax payable on 30% of No restriction
Notification No.
amount charged
on availment of
26/2012-ST dated
(Abatement Scheme) Cenvat Credit
20-6-2012
Transport of
goods by road by
Goods Transport
Agency (GTA)
No Cenvat
Tax payable on 25% of Credit available
amount charged
(Certificate
(Abatement Scheme) should be taken
from the GTA
Sr. No. 7 of
Notification No.
26/2012-ST dated
20-6-2012
that he has not
availed Cenvat
credit, as tax is
payable by
service receiver
under reverse
charge – this
headache was
not there
earlier)
Transport of
goods in a vessel
from one port in
India to another
Tax payable on 50% of No Cenvat
amount charged
Credit
(Abatement Scheme) available)
Sr. No. 10 of
Notification No.
26/2012-ST dated
20-6-2012
Transport of
passengers by air
Cenvat Credit
of input
services
Tax payable on 40% of
allowable but
amount charged
no Cenvat
(Abatement Scheme)
credit of inputs
and capital
goods
Sr. No. 5 of
Notification No.
26/2012-ST dated
20-6-2012
Transport of
passengers by rail
Sr. No. 3 of
Tax payable on 30% of No restriction
Notification No.
amount charged
on availment of
26/2012-ST dated
(Abatement Scheme) Cenvat Credit
20-6-2012
Cenvat credit
of input
services and
capital goods is
available.
Cenvat credit
of excise duty
on goods, the
property of
Tax on 25% of amount
which is
charged including fair
transferred is
market value of all
not available.
goods and services
Cenvat credit
supplied by recipient
of other inputs
(termed as Abatement
(like
Scheme – actually it is
consumables)
composition scheme)
is available
Tax on value of service
calculated as per rule
2A(i) or Tax on
25%/40%/60% of gross
amount charged as
specified in rule 2A(ii)
(Composition Scheme)
Works Contract
Service
Rule 2A of
Service Tax
(Determination of
Value) Rules
Negative List
Q
What is negative list?

List of services on which service tax is specifically exempted under section 66D
Q
What is the services covered in negative list?
A- Advertisement (except on radio & T.V.)
B- Bridges
C- Cabs (means transportation of passengers)
D- Diplomatic mission
E- Electricity
F- Funeral (includes transportation of deceased)
G- Goods Transportation
H- House Residential
I- Interest
J- Jhule (Rides)
K- Kheti (agriculture)
L- Lottery
M- Manufacture
Q- Qualification (education)
R- RBI
S- Sarkar (government)
T- Trading of Goods
Place of Provision of service (POPOS)
Q
What is place of provision of service?


It is to seen that service is provided in Taxable Territory or Non Taxable Territory. For this
place of provision of service is to be identified
There are 13 Rules to identify POPOS
Q What are the rules for identifying POPOS?
Rule Basis
POPOS
3
General
Shall be place of service receiver
4
Performance based service
Shall be place where service is
performed
5
Immovable Property related
Shall be place where immovable
service
property is
located
6
Event based service
Shall be the place where event is
performed
7
Services provided at more than
one location (overrides Rules 4,5
& 6)
Shall be the taxable territory where the
greatest proportion of the service is
provided
8
Situations where place of
provision of service outside the
taxable territory, however service Shall be Taxable Territory
provider and recipient located in
taxable territory
Specified services such as:


9


Intermediary services
Online information &
database access or retrieval
Shall be the place of service provider
services
Banking
Hiring of means of
transport (up to 1 month)
Transportation of goods
10
– By road i.e. GTA
Shall be the place of destination of
goods
– By other modes except mail
or courier
Passenger transportation services
11
Rule 14 Where a service falls
under more than one rule then the
rule which appears later shall be
applicable
Place where the passenger embarks on
the conveyance for a continuous
journey
12
Services provided on board a
conveyance
First scheduled point of departure of
that conveyance of a journey
14
Where a service falls under more than one rule then the rule which
appears later shall be applicable
(Author is associated with Rajeev Gupta & Co and can be contacted at Mobile No: 9810644840
or via email on rkg_delhica@yahoo.co.in)
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