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 ChargeImport of Service

Insurance Agent Service

Mutual Fund Agent Service

Legal Consultancy Service

Directorship in a Corporate

Arbitral Tribunal Service

Service Tax Reverse ChargeGoods Transport Agency Service

Manpower Supply Service

Sponsorship Service

Lottery Agent Service

Recovery Agent Service

Support Services by Government

Service Tax Partial Reverse ChargeWorks Contract Service

Passenger Vehicle Hire Service

Point of TaxationRule 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 GTASection 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 LiabileConsignor 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 ExemptionServices 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 non-

business 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 NotificationServices received from a provider of service located in a non- taxable 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

shareAbatement 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 89209shankar@sarafchandra.comshankar@sncassociates.com