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Service tax under Reverse Charge Mechanism

Service Tax - By: - Ashwarya Agarwal - Dated:- 9-5-2015 Last Replied Date:- 13-5-2015 - The issue of reverse charge under service tax has now gained momentum with the Central Government now expanding the scope of this machinery in the negative list regime. This single step seems to have impacted the industry/ business segment of the country the most. Section 66B of the Finance Act, 1994 provides that there shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve p .....

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tification no. 30/2012-ST, dated 20.06.2012 (As amended from time to time) has been issued by the Central Government which notifies various taxable services and the extent of service tax payable thereon by the person liable to pay service tax for the purposes of the said sub-section. Services under 100% Reverse Charge Mechanism The services on which total service tax is payable by the service recipient are listed as below: Sl. Services by way of- Service Provider Service Recipient Service Provid .....

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freight is any of the specified person 6 Sponsorship NIL 100% Body corporate or partnership firm 7 Legal service by advocate NIL 100% Individual advocate or firm of advocate Business entity with turnover more than 10 lacs in preceding F/Y 8 Arbitral Tribunal NIL 100% Business entity with turnover more than 10 lacs in preceding F/Y 9 Support services NIL 100% Government or Local Authority Business entity 10 Provided by person located in non taxable territory (Import) NIL 100% Person located in ta .....

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to be provided by goods transport agency in respect of transportation of goods by road, shall be paid by the service recipient if the person liable to pay freight is any of the following persons: any factory registered under or governed by the Factories Act, 1948 (63 of 1948); 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; any co-operative society established by or under any law; any dealer o .....

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icable in the service of sponsorship in which 100% service tax shall be paid by the service recipient (i.e. the sponsor), provided it is a Body Corporate or a Partnership Firm. Legal services by advocates In regard to any legal service provided by an individual advocate or a firm of advocates, the service tax shall be paid by the service recipient. The RCM is subject to the condition that the service recipient should be a business entity. However specific exemption has been provided to service p .....

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). However, any payment made by the employer to its employee in the course of or in relation to his employment has been kept out of the purview of service tax applicability. It may therefore be interpret that any payment made to the director in the form of salary shall not attract any service tax liability. Therefore the question of reverse charge does not arise. But in case of payment made by the company to its director is in the form of Remuneration, Commission or Sitting Fees the service tax .....

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a) of section 66D of the Finance Act,1994. Manpower supply / Security service 100% reverse charge is applicable (w.e.f. 01.04.2015) on the services provided or agreed to be provided by way of supply of manpower for any purpose or security services by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory; Services u .....

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d that the reverse charge provisions for the service of renting of motor vehicle, supply of manpower or security services or for the service portion in the execution of works contract shall apply only when the service provider is one among the specified persons and the service recipient is a business entity registered as body corporate, located in the taxable territory. Cenvat Credit It has been highly debatable whether cenvat credit can be utilized for discharging the service tax liability unde .....

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the Cenvat Credit Rules which provide that cenvat credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient. Therefore, the position is now very clear. It must be paid in cash through GAR-7 challan and the cenvat credit for the same shall be available on the basis of such GAR-7 challan. Cenvat credit of such service tax paid on reverse charge is available when the services received are covered under the definition of input .....

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e for full credit subject to other provisions of the Cenvat Credit Rules, the credit can be claimed by the service recipient in full, irrespective of the fact that part of the service tax is paid by the input service provider and part of the same paid by the service recipient. For this purpose, the credit of one portion of service tax charged by the service provider can be claimed on the basis of the bill raised by the input service provider, and that of another portion of service tax can be cla .....

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ervice provider) of ₹ 10 lacs; If Service provider is charging the service tax in the Invoice in aforesaid cases wherein you are liable to pay service tax under the RCM/ JCM, you have to deduct the component of service tax which you are liable to pay, and pay the balance amount to him; The Assessee is not responsible for failure of service tax payment by the service provider unless the assessee is not liable under the Reverse Charge Mechanism. The liability of both service provider and the .....

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s. Earlier, they were enjoying full exemption at the end of the service providers. Now, although the service providers continue to enjoy such exemption, the service tax thereon is now being collected from the recipients of such services, subject to the other conditions. This has further created new difficulty / burden of compliance on the service recipient companies/ business entities, who were otherwise not liable to any service tax compliance, as they do not provide any taxable service. Variou .....

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take on any obligation, with stringent penal/ prosecution consequences for non-compliance. Scope Limitation This note is based on the statutory/ legal position including the judicial and administrative interpretations thereof prevailing as on the date of the note. The note is issued for easy understanding of the changes taken into effect. We had taken due care in preparation of it but not responsible for any adverse consequences. By: CA Ashwarya Agarwal, Rourkela, Odisha Email: agarwal.ashwarya .....

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Motor Vehicle designed to carry passenger: Service tax is payable on this service, however notification 26/2012-ST, dt. 20.06.2012 provides an option for abatement of 60% and charge service tax on balance 40% of the bill value, subject to the condition that CENVAT credit of Capital Goods, Inputs and Input Services has not been taken under the provision of Cenvat Credit Rules, 2004 (CCR), Other than : CENVAT credit on input service of renting of motor cab has been taken under the provisions of th .....

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