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Service Tax Presentation on Reverse Charge in Service Tax Organized By By Indirect Tax Practitioner Association Of Chhattisgarh CA. MAHAVIR JAIN FCA 16.

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Presentation on theme: "Service Tax Presentation on Reverse Charge in Service Tax Organized By By Indirect Tax Practitioner Association Of Chhattisgarh CA. MAHAVIR JAIN FCA 16."— Presentation transcript:

1 Service Tax Presentation on Reverse Charge in Service Tax Organized By By Indirect Tax Practitioner Association Of Chhattisgarh CA. MAHAVIR JAIN FCA 16 th June, 2014, Monday Bhilai

2 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 3

3 Section 66 (up to ) There shall be levied a 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

4 Section 66B (W.e.f ) 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 4

5 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. 5

6 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. 6

7 Section 68 deals with payment of service tax Every person providing taxable service (service provider) shall pay 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,

8 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 8

9 In case of services covered under Section 68(2) read with 2(1)(d) 9 ServiceLiable to pay service tax Insurance agentService Recipient (i.e. Insurance company) GTA Specified persons In other case Person liable to pay fright GTA Sponsorship service to body corporate / firmRecipient of service Arbitral tribunal / individual advocate/ firm of advocateRecipient of service Support service to Govt. / local authority subject to other conditionsRecipient of service Director’s services to CompaniesRecipient of service (i.e. Company ) Rent-a-cab service subject to other conditionsRecipient of service Supply of manpower service subject to other conditionsRecipient of service Works contract service subject to other conditionsRecipient of service Services provided from non-taxable territory to any person in taxable territory Recipient of service

10 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) 10

11 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 11

12 12 Service receiver pays service tax Both service provider and service receiver pay service tax Service tax payment - different scenarios

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

14 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. 14

15 Governed by Notification No. 30/2012-ST dated w.e.f 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 Service Tax will not be payable by service receiver under reverse charge, if service was provided prior to , even if payment is made after

16 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) 16

17 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 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 17

18 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 18

19 “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’ 19

20 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. 20

21 Service ProviderService ReceiverService 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 100 % by service provider 21

22 Sr. NoDescription of ServiceService Provider Service Receiver 1.Services provided by an insurance agent to any person carrying on insurance business Nil100% 2.Services provided by a goods transport agency in respect of transportation of goods by road Nil100% 3.Services provided by way of sponsorship Nil100% 22

23 Sr. NoDescription of ServiceService providerService receiver 4.Services provided by an arbitral tribunalNil100% 5.Services provided by individual advocate or a firm of advocates by way of legal services Nil100% 5A.in respect of services provided or agreed to be provided by a director of a company to the said company ( w.e.f ) Nil100% 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 Nil100% 23

24 Sr. NoDescription of ServiceService providerService 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 ) 25%75 % 24

25 Sr. NoDescription of ServiceService providerService receiver 9.Services provided in service portion in execution of works contract50% 10.Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory Nil100% 25

26 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. 26

27 Director’s 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 27

28 ParticularsPosition upto Position w.e.f 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 director’s company 28

29 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 29

30 Security Services Se curity 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 30

31 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. 31

32 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 32

33 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 33

34 Service ProviderService Receiver Individual Advocate / Firm / LLPBusiness entity with turnover > Rs 10 lakhs in preceding financial year Arbitral TribunalBusiness entity with turnover > Rs 10 lakh in previous financial year 34 Legal Services

35 35 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% = 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% = ST = (60*12.36%)*50% = Works Contract Services

36 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% 4.944%- Works contract for maintenance or repair work 30%70%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% 7.416% 36

37 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 37

38 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.

39 39 S.NService TaxableEffective rate as on date Condition for service provider 1 Goods Transport Agency (GTA) (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) Provided that when such person is located in a non-taxable territory, the provider of such service shall be liable to pay service tax. 25%3.090% No cenvat credit availed 2 Transport of goods by rail 30%3.708% Nil 3 Transport of passengers by rail 30%3.708% Nil 4 Transport of goods in a vessel from one port in India to another 50%6.180% No cenvat credit availed 5Transport of passengers by air 40%4.944%Cenvat credit on inputs and CG is not availed

40 6 Supply of food or any other article of human consumption or any drink, in a restaurant / other premises 40%4.944% Cenvat credit of goods in Ch. 1 to 22 not taken. Further, Rule 6 reversal required 7 Supply of food in convention centre, pandal, shamiana etc 70%8.652% Cenvat credit of goods in Ch. 1 to 22 not taken. Further, Rule 6 reversal required 8 Accommodation in Accommodation in hotels, inns etc 60%7.416% Cenvat credit on inputs and CG is not availed 9 Renting of any motor vehicle designed to carry passengers 40%4.944% No cenvat credit availed 10 Package tour 25%3.090% No cenvat credit availed. Bill incl. of charges for tour 11Booking accommodation 10%1.236% -No cenvat credit availed - Bill indicates so - NA if invoice only for service charges 40

41 12 Services other than 11 and 12 provided in relation to tour 40%4.944% -No cenvat credit availed - Invoice is for gross amount 13 Financial leasing services including hire purchase 10%1.236%Nil 14 Services in relation to chit 70%8.652%No cenvat credit availed 15Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, except where entire consideration is received after issuance of completion certificate by the competent authority,- (a) for a residential unit satisfying both the following conditions, namely:– (i) the carpet area of the unit is less than 2000 square feet; and (ii) the amount charged for the unit is less than rupees one crore; (b) for other than the (a) above a) 25% b) 30% a) 3.09% b) 3.708% (i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004; (ii) The value of land is included in the amount charged from the service receiver. 41

42 16 Works contracts entered into for execution of original works 40%4.944% Cenvat credit on inputs not availed 17 Works contracts entered into for maintenance or repair or reconditioning or restoration or servicing of any goods 70%8.652% Cenvat credit on inputs not availed 18For other works contracts, not covered under sr. no. 16 and 17, including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property 60%7.416%Cenvat credit on inputs not availed 42

43 THANK YOU FORYOUR PRECIOUS TIME ANDATTENTION 43


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