REVERSE CHARGE (TAX SHIFT) :
Service receiver is liable to pay service tax instead of service provider is termed as ‘Reverse Charge’ Section 68 (2) makes provision for reverse charge .In certain cases recipients or other specified persons of the specified taxable services are liable to pay service tax and hence they are required to register compulsorily irrespective of the turnover limit .Moreover , the exemption limit of Rs.10 lakhs is not applicable to recipients of services who are liable to pay service tax. Notification No.30/2012-ST dated 20-6-2012 contains provisions relating to reverse charge.
Issues relating to Reverse Charge –
- The small service provider exemption of Rs. 10 lakhs not available when tax is payable under reverse charge
- Cenvat credit cannot be used to pay tax by service receiver
- Service tax is payable by service receiver when actual payment is made to service provider and not on receipt of invoice from service provider. However , if payment is not made to service provider within 6 months ,service tax is anyway payable
The specified taxable services are as follows:
(i) Insurance services: In case of services provided or agreed to be provided by an insurance agent to any person carrying on the insurance business (The insurance company ) , the Insurance company being the recipient of the service is liable to pay service tax.
(ii)Import of Services: Services imported from a country outside India into India for business or commerce .Hence the importer being recipients of services is liable to pay service tax. In other words any service provided or agreed to be provided by any person which is located in a non-taxable territory to any person located in a taxable territory then the recipient of such service shall be liable to pay service tax e.g. X Ltd. ,an Indian Company imported services from A Ltd. Here, X Ltd. is liable to pay service tax as recipient of service (located in taxable territory )
(iii)GOODS Transport Agency (GTA ) in respect of transportation of goods by road : Where the person liable to pay freight is any factory registered under or governed by the Factories Act ,1948 , any society registered under any law ,any co-operative society established by or under any law ,any dealer of excisable goods who is registered under Central Excise Act or the rules made thereunder ,any body corporate established by or under any law or any partnership firm whether registered or not under any law including AOP then any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage shall be liable to pay service tax.
Service tax is payable after claiming an abatement @75% but the service receiver liable to pay abated tax has to obtain a certificate from the service provider about non-availment of Cenvat credit.
Note- When the above persons are located in a non-taxable territory ,the provider of such service (GTA ) shall be liable to pay service tax.
(iv) Sponsorship services : In case of sponsorship services provided to a body corporate or a partnership firm located in India ,the body corporate or partnership firm receiving such services will be liable to pay service tax .However if the recipients of sponsorship service is located outside India ,service tax is required to be paid by the service provider rendering such services from within India. Hence sponsorship services provided for events like IPL ,Cricket Matches, Golf and Tennis etc. are now taxable services.
( v )Legal Consultancy services : Services provided by an individual Advocate or a firm of Advocates by way of legal services to any business entity located in the taxable territory ,the recipients of such services is liable to pay service tax.
(vi ) Director’s Remuneration : Services by a director to the company ,such company would be liable to pay service tax on remuneration paid to such directors but no service tax liability arises if the director is an employee of the Company as per terms of service agreement.
(vii) A Recovery Agent : In case of Service provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a NBFC , the recipient of service shall be liable to pay service tax.
(viii) Support service from Government /Local Authority: Service provided as ‘Support Service’ by the Government /Local Authority to any ‘Business Entity’ located in the taxable territory shall be liable to service tax in the hands of the recipient. However, support service in the nature of renting of Immovable Property and services specified in sub clause (i), (ii) and (iii) of clause (a) of section 66D are not taxable in the hands of the recipient. Hence ,in case of support service of renting of immovable property by CG/Local Authority ,service tax shall be payable by CG/LA as provider of service.
Note- 1.Support Service has been defined in section 65B (49 ) and includes services like advertisement and promotion ,construction or works contract , renting of immovable property ,security services ,testing and analysis
- Business Entity has been defined in section 65B (17) as “any person ordinarily carrying out any activity relating to industry ,commerce or any other business or profession.
The following table lists the services under reverse charge and liability of persons providing and receiving services.
| Sl. No. | Description of a service | Percentage of service tax payble by the person providing service | Percentage of service tax payble by the person receiving the service |
| 1. | Services provided or agreed to be provided by an insurance agent to any person carrying on the insurance business. | Nil | 100% |
| 2. | Services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, when the payment is made by specified person.
Note- Service Recipient can claim abatement of 75% |
Nil | 100% |
| 3. | Sponsorship Services provided or agreed to be provided to anybody corporate of partnership firm located in the taxable territory. | Nil | 100% |
| 4. | Services provided or agreed to be provided by an arbitral tribunal to any business entity located in the taxable territory. | Nil | 100% |
| 5. | Services provided or agreed to be provided by an individual advocate or firm of advocates by way legal services to any business entity located in the taxable territory. | Nil | 100% |
| 6. | Support service excluding (1) Renting of immovable property. (2) Services specified in sub-clauses (i),(ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994 provided or agreed to be provided by Government or or local authority to any business entity located in the taxable territory. | Nil | 100% |
| 7. | Renting of a motor vehicle designed to carry passengers like through Radio Taxis or Radio cabs etc. to any person who is not engaged in a similar business
(A ) If the service provider is claiming abatement of 60% which would be available to him if CENVAT credit on inputs ,capital Goods and Input services used for providing the taxable services has not been taken under the provisions of CENVAT Credit Rules, 2014 ) ( B ) service provider not claiming Abatement Note- 1.Service Provider must be an individual, HUF, or partnership firm including AOP , located in taxable territory. 2. Service receiver must be a business entity registered as body corporate, located in a taxable territory.
|
100%
50% |
NIL
50% |
| 8. | Supply of Manpower Services for any purpose provided or agreed to be provided by any individual, Hindu Undivided Family or proprietory firm or patnership 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.
Further Security services, cleaning services piece basis or job basis contract can be ‘manpower supply service, only if the labour work under superintendence or control of Principal Employer.
|
25% | 75% |
| 9. | Works Contract Services provided or agreed to be provided by any individual, Hindu Undivided Family or partnership firm, whether registered or not , including association of person located in the taxable territory to a business entity registered as body corporate located in the taxable territory. Note – Construction ,Job work with material ,AMC covered under works contract.
|
50% | 50% |
| 10. | Services provided or agreed to be provided by a director of a company to the said company | NIL | 100% |