REVERSE CHARGE IN SERVICE TAX WEF 01.07.2012 NEW NOTIFICATION 30-2012

Reverse ChargeMechanismin 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 servicereceivercan not claim general exemption limit of 10 Lakhrupees. So he has to pay even on few rupees of servicereceived.

It will be very harsh on servicereceiverend where he has received services falls under reverse charge for only fewhundred 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 forpassenger, 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 servicePercentage ofservice tax payable by the person providing servicePercentage of service tax payable by the person receiving the service

1servicesprovided or agreed to be providedby an insurance agent to any person carrying on insurance businessNil100%

2servicesprovided or agreed to be providedby a goods transport agency in respect oftransportationof goods by roadNil100%

3servicesprovided or agreed to be providedby way of sponsorshipNil100%

4servicesprovided or agreed to be providedby an arbitral tribunalNil100%

5servicesprovided or agreed to be providedby individual advocateNil100%

6servicesprovided or agreed to be providedby way of support service by Government or local authorityNil100%

7(a)inrespectofservicesprovided or agreed to be providedby way of renting or hiring any motor vehicle designed to carry passenger on abated value.(b)inrespectofservicesprovided or agreed to be providedby way of renting or hiring any motor vehicle designed to carry passenger on non abated value.Nil

60%100 %

40%

8.servicesprovided or agreed to be providedby way of supply of manpower for any purpose25%75 %

9.servicesprovided or agreed to be providedby way of works contract50%50%

10any taxable servicesprovided or agreed to be providedby any person who is located in a non-taxable territory and received by any person located in the taxable territory(IMPORT OF SERVICES)Nil100%

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

From old list notified vide notification 36/2004 31/12/2004 three service has been deleted1. Telecommunication2. General Insurance auxiliary3. Mutual Fund distributor services.Support services By Govt or Local authority :Section 65B(49) of Finance Act, 1994 provides the definition of supportservices. Support services in respect of which service tax is payable bybusiness entity receiving such services from government or local authorityare 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 entitiescarry out in ordinary course of operations themselves but mayobtain as services by outsourcing from others for any reasonwhatsoever.

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.Description of a serviceSERVICE PROVIDERSERVICE RECIVER

1servicesprovided by an insurance agent to any person carrying on insurance businessANYANY

2servicesprovided or agreed to be providedby a goods transport agency in respect oftransportationof goods by roadwhere 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;

3servicesprovided or agreed to be providedby way of sponsorshipanybody corporate/partnerhip firm

4servicesprovided or agreed to be providedby an arbitral tribunalArbitral tribunalBusiness entity with a turnover more than rupees ten lakh in the precedingfinancial year;

5Legal Services providedby advocate (whetherindividual or firm) to anybusiness entity individual or firmBusiness entity with a turnover more than rupees ten lakh in the precedingfinancial year;

6servicesprovided or agreed to be providedby way of support service by Government or local authorityGovernment /Local authorityBusiness entity

7(a)servicesprovided or agreed to be providedby way of renting or hiring any motor vehicle designed to carry passenger on abated value.Individual (prop ) /Partnership firm (registered or unregistered) /HUFany 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;

(b)servicesprovided or agreed to be providedby way of renting or hiring any motor vehicle designed to carry passenger on non abated value.

8servicesprovided or agreed to be providedby way of supply of manpower for any purpose

9servicesprovided or agreed to be providedby way of works contract

10any taxable servicesprovided or agreed to be providedby any person who is located in a non-taxable territory and received by any person located in the taxable territoryanyany

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 territoryshall 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 hereRegister for Service Tax :So from above now what you should do is that if you are receiving any of these services and fall under specifiedcategory of servicereceiver 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 notregisteredunder 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 fromindividualadvocate 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 20.06.2012Reverse Charge under Security Charges and Services by Directors

Vide notifications 45 & 46/2012 ST Dated 07.08.2012, services provided by non employeedirectors to the Companies and security agencies have also been subjected to the levy ofservice 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 employeesof the company in which they are directors. The definition of service itself excludes servicesprovided by the employees to employers. Hence, there is no service tax in respect of suchemployee 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 acompany established under the Companies Act, like Private Limited Company, Public LimitedCompany, Government Company. In case of security agency services, the service recipientshould be a business entity registered as a body corporate. Only in such cases reversecharge will apply.

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

No. Partnership firm is not a body corporate. Similar would be the case in case of otherreverse charge liabilities, viz., manpower supply, works contract service and renting ofvehicle 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 bebody 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 agencyservices 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 ofcontinuous supply of services has been defined as in case of continuous supply of servicewhere the provision of the whole or part of the service is determined periodically on thecompletion of an event in terms of a contract, which requires the receiver of service tomake any payment to service provider, the date of completion of each such event asspecified in the contract shall be deemed to be the date of completion of provision ofservice.

For example, if the security agency has already raised their invoice for the services providedby them during July 2012, before 7th August 2012, the service recipients liability to makethe payment is recognized on the date of invoice and hence the point of taxation shall bethe date of such invoice. Hence, if invoice has been raised by the security agency before 7thAugust 2012, reverse charge will not apply, even if the payment is made by the servicerecipient after 7th August 2012. But, if the invoice for the services provided from 1st Augustto 31st August 2012 is raised on 31st August 2012, the date of invoice, i.e. 31st August 2012would be the point of taxation and hence the service recipient would be liable to make thepayment of his portion of service tax liability under reverse charge, though part of theservice has been provided before 7th August 2012. In other words, there is no need to splitup 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 August2012, reverse charge will not apply.

If the services provided by the directors and security agencies does not qualify ascontinuous supply of service, then the point of taxation shall first be determined for theservices provided. If the point of taxation is on or after 7th August 2012, reverse charge willapply 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 forthe 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 financialyear 2011-12 is less than Rs. 10 lakhs, they can claim exemption upto Rs.10 lakhs, during2012-13 if the value of services provided by them to the companies and other taxableservices, if any provided by them, is upto less than Rs.10 lakhs. This exemption is containedin notification 33/2012 ST Dated 20.06.2012 and subject to the conditions prescribedtherein.

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 caseof security agencies, 75 % of the service tax liability (9%) shall be paid by the servicerecipient 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 asa body corporate. In case of the services of security agencies are provided to other thanbusiness entities or to business entities who are not registered as body corporates, theentire 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 ascenvat credit?

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

Hence, cenvat credit would normally be entitled subject to other conditions under theCenvat 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 challanevidencing payment of service tax by the service recipient would be the relevant documentto 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 aninvoice 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-directors-security.html#ixzz26RI6DF5f