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REVERSE CHARGE IN SERVICE TAX WEF 01.07.

2012 NEW NOTIFICATION 30-2012


Reverse Charge Mechanism in service tax is not a new concept. Under this scheme, service tax is payable by service recipient instead of service provider . Under this charge service receiver have to register himself under service tax . Further service receiver can not claim general exemption limit of 10 Lakh rupees. So he has to pay even on few rupees of service received. It will be very harsh on service receiver end where he has received services falls under reverse charge for only few hundred rupees but due to it he has to register himself in service tax and have to file service tax return on prescribed interval.Moreover under service tax act Nil return is also mandatory and every registered person have to file half yearly return .

Now after applicabilty of new service tax regime, new services which is very common like advocate,Hiring vehicle for passenger , has been added under reverse charge.

Complete List is given as under.This is applicable from 01.07.2012.Few new services has been added with partial reverse charge .In case of these services both service receiver and provider has to pay service tax in prescribed ratio.
Sl.No. Description of a service Percentage of service tax payable by the person providing service Nil Percentage of service tax payable by the person receiving the service 100%

3 4 5 6

8.

services provided or agreed to be provided by an insurance agent to any person carrying on insurance business services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road services provided or agreed to be provided by way of sponsorship services provided or agreed to be provided by an arbitral tribunal services provided or agreed to be provided by individual advocate services provided or agreed to be provided by way of support service by Government or local authority (a) in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value. (b) in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non abated value. services provided or agreed to be provided by way of supply of manpower for any purpose

Nil

100%

Nil Nil Nil Nil

100% 100% 100% 100%

Nil

100 %

60% 25%

40% 75 %

9. 10

services provided or agreed to be provided by way of works contract any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory(IMPORT OF SERVICES)

50% Nil

50% 100%

Whether Reverse Charge is applicable on New services inserted from 01.07.2012 if it has been provided or paid before 01.07.2012 read here

From old list notified vide notification 36/2004 31/12/2004 three service has been deleted 1. Telecommunication 2. General Insurance auxiliary 3. Mutual Fund distributor services. Support services By Govt or Local authority :Section 65B(49) of Finance Act, 1994 provides the definition of support services. Support services in respect of which service tax is payable by business entity receiving such services from government or local authority are as under: (i) Infrastructural Support Services; (ii) Operational support Services; (iii) Administrative Support Services; (iv) Logistic Services; (v) Marketing Services; (vi) Advertisement Services; (vii) Promotion Services; (viii) Construction or Works Contract Services; (ix) Security; (x) Testing and Analysis (xi) 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. Partial Reverse charge :But few new services has been added in the List and for the first time in service tax act /regime partial reverse charge under service tax has been introduced. Now both service receiver and service provider have to pay tax as per prescribed % in case of four services. The reverse charge is applicable if service receiver /service provider satisfy few condition .In other case service provider has to pay tax on full amount of service.
Sl.No. 1 Description of a service services provided by an insurance agent to any person carrying on insurance business

SERVICE PROVIDER ANY

SERVICE RECIVER ANY

services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road

where the consignor or the consignee is, (a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948); (b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India; (c) any co-operative society established by or under any law; (d) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder; (e) any body corporate established, by or under any law; or (f) any partnership firm whether registered or not under any law including association of persons; any

services provided or agreed to be provided by way of sponsorship

body corporate/partnerhip firm Business entity with a turnover more than rupees ten lakh in the preceding financial year; Business entity with a turnover more than rupees ten lakh in the preceding financial year; Business entity

services provided or agreed to be provided by an arbitral tribunal

Arbitral tribunal

Legal Services provided by advocate (whether individual or firm) to any business entity

individual or firm

services provided or agreed to be provided by way of support service by Government or local authority (a) services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value. (b) services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non abated value.

Government /Local authority

Individual (prop ) /Partnership firm (registered or unregistered) /HUF

any company formed or registered under the Companies Act, 1956 (1 of 1956) or a business entity registered as body corporate located in the taxable territory;

services provided or agreed to be provided by way of supply of manpower for any purpose services provided or agreed to be provided by way of works contract

10

any taxable services provided or agreed to be provided by any person who is located in a nontaxable territory and received by any person located in the taxable territory

any

any

Explanation-I. - The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification. 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. Whether Reverse Charge is applicable on New services inserted from 01.07.2012 if it has been provided or paid before 01.07.2012 read here Register for Service Tax :So from above now what you should do is that if you are receiving any of these services and fall under specified category of service receiver then you must register your self for service tax . Amend service tax registration :If you have already register under service tax act and receiving one of new service added under reverse charge at sr no 4-10 then you have to add this specific service in your service tax registration certificate. Suppose if a Company is doing some trading of shares and have not registered under service tax but you are hiring vehicle for employee or director for travelling and doing marginal expenses on travelling . After this amendment company has to register under service tax act and have to pay 100% /40 % of service tax as the case may be and have to file service tax return. Likewise if a business entity has taken a legal opinion from individual advocate or Firm of advocates then business entity have to pay 100% of service tax due on fees and have to register under service tax . Suppose they have just paid Rs 2000 in full year even then business entity have to register under service tax act and have to deposit 12.36 % tax on 2000/- Rs and have to file service tax return . And for such work he has to take again professional help.? After 01.07.2012 Service tax is not payable by Individual advocates and Advocate Firm and service receiver (business entity) have to pay tax on services received from Individual advocate. All of above amendments are applicable from 01.07.2012. This is as per notification 30/2012 dates 20.06.2012

Reverse Charge under Security Charges and Services by Directors


Vide notifications 45 & 46/2012 ST Dated 07.08.2012, services provided by non employee directors to the Companies and security agencies have also been subjected to the levy of service tax under Reverse charge mechanism. In this connection, the following questions are often raised.

1. Does service tax applicable for all directors of a Company?

Whole time directors and Managing Directors of the companies are considered as employees of the company in which they are directors. The definition of service itself excludes services provided by the employees to employers. Hence, there is no service tax in respect of such employee directors. Service tax will apply only in case of non employee directors.

2. Does reverse charge applicable for all service recipients?

In respect of services provided by directors, obviously, the service recipient should be a company established under the Companies Act, like Private Limited Company, Public Limited Company, Government Company. In case of security agency services, the service recipient should be a business entity registered as a body corporate. Only in such cases reverse charge will apply.

3. If the service recipient is a partnership firm, whether reverse charge will apply for security services received by it?

No. Partnership firm is not a body corporate. Similar would be the case in case of other reverse charge liabilities, viz., manpower supply, works contract service and renting of vehicle services. But in case of support services provided by Government, Advocates, reverse charge will apply if the service recipient is business entity and they need not be body corporates.

4. What about the liability for the period 1st July 2012 to 7th August 2012?

It may be noted that the services of Directors to the companies and security agency services are normally continuously provided for more than a period of 3 months. Hence, they would be continuous supply of service as defined in Point of Taxation Rules, 2011. As per first proviso under Rule 4 of the said Rules, the point of taxation in case of continuous supply of services has been

defined as in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service.

For example, if the security agency has already raised their invoice for the services provided by them during July 2012, before 7th August 2012, the service recipients liability to make the payment is recognized on the date of invoice and hence the point of taxation shall be the date of such invoice. Hence, if invoice has been raised by the security agency before 7th August 2012, reverse charge will not apply, even if the payment is made by the service recipient after 7th August 2012. But, if the invoice for the services provided from 1st August to 31st August 2012 is raised on 31st August 2012, the date of invoice, i.e. 31st August 2012 would be the point of taxation and hence the service recipient would be liable to make the payment of his portion of service tax liability under reverse charge, though part of the service has been provided before 7th August 2012. In other words, there is no need to split up the liability into pre / post 7th August 2012.

Similar would be the case in respect of services provided by the Directors to the Companies. If the liability to make the payment to the Director is recognized after 7th August 2012,reverse charge will apply and if such liability is recognized by the company before 7th August 2012, reverse charge will not apply.

If the services provided by the directors and security agencies does not qualify as continuous supply of service, then the point of taxation shall first be determined for the services provided. If the point of taxation is on or after 7th August 2012, reverse charge will apply and if the point of taxation is before 7th August 2012, reverse charge will not apply.

5. Whether the Directors have to obtain registration and pay service tax for the month of July 2012?

Yes. But, till 1st July 2012, the services provided by them was not a taxable service.Hence, if the value of other taxable services rendered by them, if any, during the financial year 2011-12 is less than Rs. 10 lakhs, they can claim exemption upto Rs.10 lakhs, during 2012-13 if the value of services provided by them to the companies and other taxable services, if any provided by them, is upto less than Rs.10 lakhs. This exemption is contained in notification 33/2012 ST Dated 20.06.2012 and subject to the conditions prescribed therein.

6. What is the portion of service tax payable under reverse charge?

In case of directors, the entire service tax liability has to be paid by the company. In case of security agencies, 75 % of the service tax liability (9%) shall be paid by the service recipient and 25 % of the service tax liability (3%) shall be paid by the security agencies.

7. Whether the security agencies can pay 3 % service tax in all cases?

No. Reverse charge will apply only if the service recipient is a business entity registered as a body corporate. In case of the services of security agencies are provided to other than business entities or to business entities who are not registered as body corporates, the entire service tax has to be paid by the security agency and no reverse charge will apply.

8. Whether the service tax thus paid under reverse charge can be availed as cenvat credit?

Entitlement to cenvat credit of service tax is to be decided with reference to the definition of input service under the Cenvat Credit Rules, 2004. Normally, the services of Directors and security agencies would be an eligible input service for a manufacturer and a service provider. Further, security service is specifically covered in the definition of input service.

Hence, cenvat credit would normally be entitled subject to other conditions under the Cenvat Credit Rules, 2004.

9. What is the document based on which cenvat credit can be taken?

In case of service tax paid directly by the service recipient under reverse charge, the challan evidencing payment of service tax by the service recipient would be the relevant document to avail cenvat credit. In respect of the portion of service tax paid by the security agency, the invoice issued by the security would be the relevant document.

10.Whether the directors have to issue an invoice?

As per the provisions of the Service Tax Rules, 1994 every service provider must raise an invoice within 30 days of completion of the service.

11. Under what code this services Tax on these services are to be deposited by services recipient. From 01.07.2012 ,one Accounting code head for all the services has been notified. so these accounting code is to be used to deposit service tax for all type of services whether deposited under reverse charge by service recipient or by service provider.(read details here)

Read more: http://www.simpletaxindia.net/2012/08/reverse-charge-for-directorssecurity.html#ixzz26RI6DF5f

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