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Enabling Service Tax Practice - Level I

Presentation
on
Charge & Reverse Charge in Service Tax




Organized By By
Indirect Tax Committee of ICAI &
Vijayawada Branch of ICAI Dr. Sanjiv Agarwal
@ Vijayawada FCA, FCS,
8
th
Nov, 2013, Friday Jaipur / Delhi

Dr. Sanjiv Agarwal
This Presentation Covers

Charge of Service Tax
Payment of Service Tax
Person liable to pay Tax
Registration under Service Tax
Reverse charge provisions
Concept
Conditions
Rates
Full / partial (joint) reverse charge
Abatements & reverse charge


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Section 66 (up to 30.6.2012)

There shall be levied a tax @ 12 percent of the value of
taxable services as referred to in section 65(105), i.e.,
taxable services

Not to apply w.e.f. 1.07.2012
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Section 66B (W.e.f 1.7.2012)

There shall be levied a tax at the rate of twelve per cent
on the value of all services, other than those services
specified in the negative list, provided or agreed to be
provided in the taxable territory by one person to
another and collected in such manner as may be
prescribed

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Essential ingredients for charge of Service Tax (Section 66B)
There should be a service involved
Such service should not be one included in the negative list
as defined in section 66D.
Services should be provided or agreed to be provided.
Services should be provided in the taxable territory only.
Services should be provided by one person to another
person.
Tax shall be levied on value of services so provided or
agreed to be provided.
Collection shall be in prescribed manner.
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Provided or to be provided v. provided or agreed to be provided
Before actual provision of service is made, all relevant
information on chargeable event must be known
On account advance payment without any identification of
services or activities may not be liable to service tax
Services which have only been agreed to be provided but
are yet to be provided are taxable
Receipt of advances for services agreed to be provided
become taxable before the actual provision of service
Advances that are retained by the service provider in the
event of cancellation of contract of service by the service
receiver become taxable as these represent consideration
for a service that was agreed to be provided.

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Section 68 deals with payment of service tax
Every person providing taxable service (service provider)
shall pay tax @ 12.36% , to be collected in prescribed
manner. [section 68(1)]
Service recipient is a person liable to pay service tax in
certain cases [section 68 (2)]
Person liable to pay service tax defined in rule 2(1)(d) of
Service Tax Rules, 1994

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Defined in rule 2(1)(d) of Service Tax Rules, 1994 and
2(m) of POP Rules, 2012
Person liable to pay service tax u/s 68 or rule 2(1)(d) of
ST Rules, 1994
Persons liable
Service provider
Specified service receivers [Rule 2(1)(d)(i)(A to G)]
Importer of service



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In case of services covered under Section 68(2) read with 2(1)(d)

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Service Liable to pay service tax
Insurance agent Service Recipient (i.e. Insurance company)
GTA
Specified persons
In other case

Person liable to pay fright
GTA
Sponsorship service to body corporate / firm Recipient of service
Arbitral tribunal / individual advocate/ firm of advocate Recipient of service
Support service to Govt. / local authority subject to other conditions Recipient of service
Directors services to Companies Recipient of service (i.e. Company )
Rent-a-cab service subject to other conditions Recipient of service
Supply of manpower service subject to other conditions Recipient of service
Works contract service subject to other conditions Recipient of service
Services provided from non-taxable territory to any person in taxable
territory

Recipient of service
Every person who is liable to pay service tax shall take registration
under service tax as per section 69 of Finance Act, 1994
Service recipient shall obtain registration under service tax as recipient
of service, pay service tax and file return
Assessees who have to take registration
Service provider who has provided a taxable services of value
exceeding Rs. 9 lakhs in the preceding financial year
Service receiver liable to pay service tax under reverse charge
mechanism u/s 68(2) / rule 2(1)(d)
Input service distributor
Importer of service being person liable u/s 68(2)

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Service tax is an indirect tax levied by service provider on
the service recipient
Service provider collects service tax from service receiver
and pays to Govt. itself / himself
Under reverse charge, the position becomes reverse
Instead of tax being paid by service provider, service
receiver has to deposit tax in Govt. account


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Service provider pays service
tax

Service receiver pays service tax

Both service provider and service
receiver pay service tax
Service tax payment - different
scenarios
Normally, service tax is payable by person who provides the service

Section 68(2) makes provision for reverse charge i.e. making person
receiving the service liable to pay tax

Authority for reverse charge u/s 68(2) of Finance Act, 1994

Person liable to pay tax Rule 2(1)(d) of Service Tax Rules, 1994

W.e.f. 1.7.2012, a new scheme of taxation is applicable whereby the
liability of payment of service tax shall be both on the service provider
and the service recipient (Notification No. 30/2012-ST, dated 20.6.2012 )

The extent to which tax liability has to be discharged by the service
receiver is specified in Notification No. 30/2012-ST dated 20.6.2012.

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Under Partial Reverse Charge (Proportional / Joint)

Renting of motor vehicles
Manpower supply & security services
Works contracts

Under Full Reverse Charge (100%)
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.

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Governed by Notification No. 30/2012-ST dated 20.06.2012
w.e.f. 1.7.2012
Liabilities of both the service provider and service receiver
are statutory and independent of each other
Liability cannot be shifted by mutual agreement
Reverse charge will not apply where the service receiver is
located in non-taxable territory
Reverse charge shall not be applicable if provider of service
was liable before 1.7.2012
Service Tax will not be payable by service receiver under
reverse charge, if service was provided prior to 1.7.2012,
even if payment is made after 30.06.2012

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Credit of tax paid can be availed by service recipient if it is
input service for him

The credit of tax paid by the service recipient under partial
reverse charge would be available on the basis on the tax
payment challan (but invoice required)

Service provider under RCM may claim refund of tax paid
under rule 5(b) of CCR, 2004

Service Tax under reverse charge to be paid within 6 months
on actual payment (Rule 7 of POT Rules, 2011)

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Small scale benefit is available only to service provider (not to service receiver), if entitled
Service receiver under reverse charge cannot avail exemption of Rs. 10 lakh under
Notification No. 33/2012-ST dated 20.06.2012
Valuation of services by services provider and service receiver can be on different principles,
if permitted by law (e.g. works contract - Refer Notification No. 30/2012-ST, explanation II)
Invoice to be prepared as per Rule 4A of Service Tax Rules, 1994
It is a statutory obligation (not contractual) on the service recipient to pay Service Tax,
whether under full or proportional reverse charge
Service Tax under reverse charge has to be paid only by cash vide GAR Challan No. 7 and it
cannot be paid by way of utilization of Cenvat Credit.
Once paid, Cenvat credit can be taken for paying eligible input service




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In case of proportional reverse charge (manpower supply &
security, works contract and motor vehicle hire to carry
passengers), it is advisable that service provider should charge
Service Tax only on his portion of service in the invoice and
mention that Service Tax on balance amount is payable by
service receiver.
Service receiver liable only for his portion
For three specified services provided by business entities being
company, society, co-operative society, trust etc, reverse charge
will not apply.
Reverse charge will also not apply where the service recipient is
any person or business entity not being a body corporate in case
of three specified services


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Business Entity means any person ordinarily carrying
out any activity relating to industry, commerce or any
other business or profession

Body Corporate means the meaning assigned to in
clause (7) of Section 2 of the Companies Act, 1956 and
section 2(11) of 2013 Act.
Company , corporation and LLP are body corporate
Firm, HUF, Trust are not body corporate
Co-operative society is legally not body corporate

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In respect of manpower supply and security services, works
contract services and renting of motor vehicles to carry
passenger, reverse charge shall be applicable only when following
two conditions are satisfied

service receiver is a business entity registered as a body corporate,
and
service provider is any one of the following entities
Individual
Hindu undivided family (HUF)
Firm (including limited liability partnerships)
Association of persons

If both the above conditions are not satisfied in respect of these
three services, Service Tax shall be payable by the service
provider in ordinary course.

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Service Provider Service Receiver Service Tax Payable by
Individual /HUF/
Partnership firm
/AOP
Business entity
body corporate
Joint
Individual /HUF/
Partnership firm
/AOP
Individual /HUF/
partnership firm
/AOP
100 % by service
provider
Business entity
Body Corporate /
Company
Individual /HUF/
Partnership firm
/AOP
100 % by service
provider

Business entity
Body Corporate
Business entity
Body Corporate
100 % by service
provider

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Sr. No Description of Service Service
Provider
Service
Receiver
1. Services provided by an insurance
agent to any person carrying on
insurance business
Nil 100%
2. Services provided by a goods
transport agency in respect
of transportation of goods by road
Nil 100%
3. Services provided by way of
sponsorship
Nil 100%
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Sr. No Description of Service Service provider Service receiver
4. Services provided by an arbitral tribunal Nil 100%
5. Services provided by individual advocate or
a firm of advocates by way of legal services
Nil 100%

5A. in respect of services provided or agreed
to be provided by a director of a company
to the said company ( w.e.f 7.08.2012)
Nil 100%
6. Services provided by Government or local
authority by way of support services
excluding,-
(1) renting of immovable property,
(2) postal services
(3) transport of goods / passengers
(4) air craft or vessel
Nil 100%
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Sr. No Description of Service Service provider Service receiver
7.
Hiring of Motor Vehicle
(a) renting of a motor vehicle
designed to carry passengers on
abated value to any person not
engaged in the similar line of
business
(b) renting of a motor vehicle
designed to carry passengers on non
abated value to any person who is
not engaged in the similar line of
business
Nil




60%
100 %




40%
8.
Services provided by way of supply
of manpower for any purpose or
security services ( w.e.f 07.08.2012)
25% 75 %
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Sr. No Description of Service Service provider Service receiver
9. Services provided in service portion
in execution of works contract

50%

50%
10. Services provided by any person who
is located in a non-taxable territory
and received by any person located in
the taxable territory

Nil

100%
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Vide entry No. 5A of N. No. 30/2012 as amended by N. No. 45 and
46/2012
Service tax is payable under reverse charge by companies who
receive services from their directors who are not in employment
Sitting fees, commission, bonus, etc. are subject to service tax
WTDs /MDs /EDs who are under contractual employment with
the company and receive salary or remuneration from the
company will not be covered - considered as employees of the
company
Director can be appointed either in an individual capacity or as a
nominee for company , association or any other entity including
Government.
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Directors Services
Interest on loan by director to company, dividend on
shares, other professional charges on account of services
not rendered as a director (in professional capacity) are not
liable to Service Tax
In case of nominee director, the nominating company who
receives fees will be liable to pay service tax
The invoice / receipt to be issued by the directors within 30
days
In case of nominee directors, the invoice will be issued by
the nominating company
In the case of Government nominees, the services shall be
deemed to be provided by the Government but liable to be
taxed under reverse charge basis

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Particulars Position upto 6.8.2012 Position w.e.f. 7.8.2012
Individual
Director in his
individual
capacity
To be register and pay service
tax
Service tax paid by the
company
Nominee
Director
Paid by the nominee
directors company
Paid by the nominee directors
company

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Manpower Supply Services
Service is manpower supply service if under command
of principal employer
Cleaning service, piece basis / job basis contract is not
manpower supply service
Service tax will be applicable on salary plus PF, ESI,
commission of labour contractor and other charges
Employees sent on deputation is also covered under
manpower supply services


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Security Services
Security services means services relating to the security of
any property, whether movable or immovable, or of any
person, in any manner and includes the services of
investigation, detection or verification, of any fact or
activity
CA services are not security services
Distinction between manpower supply & security services
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Rent-a-cab Service
In case of renting of motor vehicles to carry passengers
where abatement is also available, reverse charge basis is
proportional depending upon the abatement on the
condition that no Cenvat Credit has been availed. The
service provider should provide a certificate, either in the
invoice itself or separately.
In case of renting of motor vehicle to carry passengers,
reverse charge applies only where the motor vehicle is
provided with driver and service receiver is not engaged in
same business.





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Rent-a-cab Service
Reverse charge will be applicable when renting to a
person who is not in similar line of business
Service receiver will pay on 40% in every case whether
abatement is claimed or not
No Cenvat credit (not an input service)
Cost to company




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Goods Transport Service
Service tax liability arise when consignment note is
issued
GTA will be liable for pay tax only when both service
provider and service receiver are individuals
Tax on 25% (abated value), if GTA does not avail
Cenvat Credit otherwise tax on 100% value

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Service Provider Service Receiver
Individual Advocate / Firm / LLP

Business entity with turnover > Rs 10
lakhs in preceding financial year
Arbitral Tribunal Business entity with turnover > Rs 10
lakh in previous financial year
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Legal Services
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Original works i.e. new
construction, all types of
addition & alteration and
erection, commissioning or
installation of
PM/Equipment etc .
Taxable Amount = 40% of
the Total Amount Charged
ST = (40*12.36%)*50% =
2.472
Maintenance or repairs
or reconditioning or
restoration or servicing of
goods e.g. AMC
Maintenance, repairs,
completion & finishing
service such as glazing,
plastering, floor and wall
tiling etc. e.g. interior
decoration
Taxable Amount = 70% of the
Total Amount Charged
Taxable Amount = 60% of
the total amount charged
ST = (70*12.36%)*50% =
4.326
ST = (60*12.36%)*50% =
3.708
Works Contract Services
Nature of Works
Contract
Value of
Abatement
(%)
Tax
payable
on (%)
Rate of Service Tax in
case of Reverse Charge
Without Reverse
Charge
Service
Provider
(%)
Receiver
Service
(%)
Service
Provider
(%)
Receive
r
Service
(%)
Works contract for original
work
60% 40% 2.472% 2.472% 4.944% -
Works contract for
maintenance or repair
work
30% 70% 4.326% 4.326% 8.652% -
Works contract for works
not included in above,
including contracts for
maintenance, repair,
completion and finishing
services such as glazing,
plastering and wall tiling,
installation of electrical
fittings.
40% 60% 3.708% 3.708% 7.416%
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Services provided by Government / local authority

Reverse charge applicable to all services except following
specified services

Government Department needs to be registered and to pay
tax on support services of
Renting of immovable properties
Speed post, express parcel, life insurance.
Transport of goods and/ or passengers
Services in relation to vessel or aircraft

Services to be provided to any business entity located in taxable
territory

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Reverse Charge Mechanism

Additional information suggested on the invoice

Amount of Service Tax based on his share of Service Tax liability, if any, (which service
recipient is required to pay to the service provider) - in case of joint or proportionate reverse
charge liability.
Fact that entire amount of Service Tax on the invoice is payable by the service recipient under
reverse charge (if so).
Invoice amount is inclusive / exclusive of applicable Service Tax.
Alternatively, in case of proportionate reverse charge, service provider should charge Service
Tax only on that part of the invoice for which he is liable to pay and wants to recover from the
service recipient and mention that balance amount is payable by the service recipient.

Sl. No Description of taxable service Taxable
value(%)
Conditions
7 Transport of goods by road by Goods
Transport Agency
25 CENVAT credit on inputs, capital
goods and input services, used
for providing the taxable service,
has not been taken under the
provisions of the CENVAT Credit
Rules, 2004.
9 Renting of any motor vehicle designed
to carry passengers
40 Same as above
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THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal
FCA, FCS, Jaipur
asandco@gmail.com
sanjivservicetax@gmail.com
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