Service Tax - Reverse Charge
by CA Abhishek Malpani on 27 September 2013
Reverse charge on service tax
Reverse Charge on Service Tax:
Under this scheme, service tax is payable by service recipient instead of service provider. Under this charge service receiver has 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.
Applicability of Reverse Charge:
As per notification 30/2012- Service Tax, Reverse charge is applicable from 1st July 2012 (For few services, reverse charge is applicable before 1st July 2012).
P oint of taxation in Reverse Charge:
Date of payment by service Recipient is Point of taxation (general rule): As per rule 7 of the point of Taxation Rules 2011(amended). In case where the service recipient is liable to pay tax, the point of taxation shall be the date of payment against such services.
If payment is not made with in six months(exception) :However. the said rule provides that in case the payment is not made with in 6 months from the date of invoice. then the point of taxation shall be determine. as the rule does not exist. Thus the point of in that case would be as per rule 3.
a. If the invoice is issued with in the period specified in rule 4A of service tax rules, 1994 (30days w.e.f 01.04.2012) from the date of completion of service: Date of issue of invoice or receipt of payment, which ever is earlier.
b.If invoice is not issued with in prescribed time: Date of completion of service or receipt of payment (payment date).
Registration of Service Tax:
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 then you have to add this specific service in your service tax registration certificate.
Is the reverse charge applicable on services provided and complete before 1st July 12 though payments
were made after 1.7.2012?
For any service whose point of taxation has been determined and whole liability affixed before 1.7.2012 the new provisions will not apply. Merely because payments are being made after 1.7.2012 will not add any additional liability on the service receiver in espect of such services.
If the service provider is exempted being a SSI (turnover less than Rs 10 lakhs), how will the reverse charge mechanism work?
The liability of the service provider and service recipient are different and independent of each other. Thus in case the service provider is availing exemption owing to turnover being less than Rs 10 lakhs; he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is obliged to pay under the partial reverse charge mechanism.
Will the credit of tax paid by service receiver be available?
Yes. Credit will be available to service receiver of service tax paid under reverse charge expect service tax paid on Rent a cab service.
What if service provider charge service tax on whole invoice value instead of partial service tax?
In this case, service receiver has to discharge only that much of service tax which service provider is liable to charge.
How is the service recipient required to calculate his tax liability under partial reverse charge mechanism? How will the service recipient know which abatement or valuation option has been exercised by the service provider?
The service recipient would need to discharge liability only on the payments made by him. The invoice raised by the service provider would normally indicate the abatement taken or method of valuation used for arriving at the taxable value. However since the liability of the service provider and service recipient are different and independent of each other, the service recipient can independently avail or forgo abatement or choose a valuation option depending upon the ease, data available.
Whether Service Receiver can pay Service Tax by utilizing CENVAT Credit?
No. It is well clarified in Explanation to Rule 3(4) of Cenvat Credit Rules, 2004 provides 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, Service Receiver has to make payment of Service tax in cash.
How to Identify the status of Service tax Provider?
This can be verified from the PAN of the service provider and PAN is quoted on invoice of service provider, as Service Tax Registration number is PAN based. One has to see 4th letter of the Service tax registration no, for identifying the status of service provider.