1. Presented By J.K. MITTAL (Advocate) Chairman, Indirect Taxes Committee, PHDCCI Co-Chairman, National Council (Indirect Taxes), ASSOCHAM LL.B.,F.C.A., F.C.S. NEW DELHI Ph: 011- 22056635 Fax: 011- 22447420 Email: jkmittalservicetax@gmail.com Reverse Charge J.K.Mittal FCA, FCS,LLB 1J.K.Mittal FCA, FCS,LLB

2. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 2 Notification No. 30/2012-ST, dated 20.06.2012 services have been Notified for the purpose of section 68(2) for reverse charge purposes. Amended w.e.f. 01.07.2012, the Service Tax Rules, 1994 by Notification No. 36/2012-ST, dated 20.06.2012 to specify the person liable for paying service tax in respect of such Notified services under Rule 2(1)(d) of the said Rules.

3. Reverse Charge Mechanism The extent of service tax payable thereon by the person who provides the service and the person who receives the service for the taxable services specified in (I) shall be as specified in the following Table, namely:— Contd… J.K.Mittal FCA, FCS,LLB 3 Sl. No. Description of a service %age of service tax payable by the provider of service %age of service tax payable by the recipient of service 1. in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business Nil100% 2. in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road Nil100% 3 in respect of services provided or agreed to be provided by way of sponsorship Nil100% 4 in respect of services provided or agreed to be provided by an arbitral tribunal Nil100% 5 in respect of services provided or agreed to be provided by individual advocate or a firm of advocates by way of legal services Nil100%

4. Reverse Charge Mechanism J.K.Mittal FCA, FCS,LLB 4 Sl. No. Description of a service %age of service tax payable by the provider of service %age of service tax payable by the recipient of service 6 in respect of services provided or agreed to be provided by Government or local authority by way of support services excluding,— (1) renting of immovable property, and (2) services specified in sub- clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994 Nil100% 7 (a) in respect of services pro-vided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business (b) in respect of services pro-vided or agreed to be provided by way of 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. in respect of services provided or agreed to be provided by way of supply of manpower for any purpose 25%75% 9. in respect of services provided or agreed to be provided in service portion in execution of works contract 50% 10 in respect of any taxable services provided or agreed to be provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory Nil100%

5. Reverse charge on sharing basis for specified services SL. NO.Description of serviceService recipientService provider 1. Hiring of a motor vehicle designed to carry passengers: (a) with abatement (b) without abatement 100% 40% NIL 60% 2. Supply of manpower for any purpose or Security services 75%25% 3.Works contract service50% J.K.Mittal FCA, FCS,LLB 5

6. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 6 (1) Insurance Agent Services (2) Goods Transport Agency Services However, where the person who pays or is liable to pay freight is located in a non-taxable territory, then the provider of such service shall be liable to pay service tax. In other words, in such case, reverse charge mechanism will not be applicable and goods transport agency shall be liable to pay tax. Thus, in such case, the said goods transport agency will be liable to pay 100% service tax, subject to available abatement/exemption.

7. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 7 (3) Sponsorship Services In relation to service provided or agreed to be provided by way of sponsorship to any body corporate or partnership firm located in the taxable territory, the recipient of such service. (4) Service by Arbitral Tribunal In relation to service provided or agreed to be provided by an arbitral tribunal to any business entity located in the taxable territory, the recipient of such service.

8. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 8 (5) Legal Service In relation to service provided or agreed to be 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 recipient of such service. (6) Support Service by Government or Local Authority In relation to support service provided or agreed to be provided by Government or local authority to any business entity located in the taxable territory, the recipient of such service.

9. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 9 However, such reverse charge mechanism will not be applicable when the Government or Local Authority provides following services— (1)renting of immovable property, (2)services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government; (3)services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an airport; and (4)transport of goods or passengers; As per Rule 2(f) of the Service Tax Rules, 1994, “renting of immovable property” means any service provided or agreed to be provided by renting of immovable property or any other service in relation to such renting.

10. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 10 (7) Services from non-taxable territory to taxable territory In relation to any taxable service provided or agreed to be provided by any person which is located in a non-taxable territory and received by any person located in the taxable territory, the recipient of such service. (8) Reverse charge on sharing basis for specified services (Partial Reverse Charge) (9) Services provided or agreed to be provided by a director of the company to said company

11. Reverse charge on sharing basis for specified services amendment w.e.f. 07.08.12 see Notification No. 45 &46 J.K.Mittal FCA, FCS,LLB 11 SL. NO.Description of serviceService recipientService provider 4. Services provided or agreed to be provided by a director of the company to said company 100%NIL 5.Security services75%25% Security service means – service related to 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. [Rule 2(1)(fa)]

12. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 12 “security agency” means any person engaged in the business of rendering 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, whether of a personal nature or otherwise, including the services of providing security personnel. [Section 65(94)] “taxable service” means any service provided or to be provided, to any person, by a security agency in relation to the security of any property or person, by providing security personnel or otherwise and includes the provision of services of investigation, detection or verification of any fact or activity. [Section 65(105)(w)] Security service means – service related to 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. [Rule 2(1)(fa)]

13. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 13 As per Explanation-II to Notification 30/2012-ST, dated 20.06.2012, “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.” As per Rule 2(g) of the Service Tax Rules, 1994, “supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.

14. Mechanism and implication of expansion of reverse charge – meaning ‘works contract’ J.K.Mittal FCA, FCS,LLB 14 Section 66E(h)“service portion in the execution of a works contract” Section 65 B(54) "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property. For section 66E(b) -“the expression “construction” includes additions, alterations, replacements or remodelling of any existing civil structure”

15. Works Contract means– Rule 2A of Valuation Rules J.K.Mittal FCA, FCS,LLB 15 (ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:— (A)in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;

16. Works Contract– Rule 2A of Valuation Rules J.K.Mittal FCA, FCS,LLB 16 (B)in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract; (C)in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property, service tax shall be payable on sixty per cent. of the total amount charged for the works contract;

17. Works Contract– Rule 2A of Valuation Rules J.K.Mittal FCA, FCS,LLB 17 Explanation 1.—For the purposes of this rule,— (a)“original works” means— (i)all new constructions; (ii)all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable; (iii)erection, commissioning or installation of plant, machinery or equipment or structures, whether pre-fabricated or otherwise;

18. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 18 (a) Non-applicability of Partial Reverse Charge The above-mentioned Reverse Charge Mechanism on three taxable services is not applicable in all cases. It shall not apply in following cases: (i)when such services are provided by a company or a body corporate to another body corporate. (ii)when such services are provided by a company or a body corporate to an individual or a partnership firm or to any other person. (iii)when service of renting of motor vehicle designed to carry passenger is provided by an individual/partnership firm/HUF/AOP to a body corporate in the similar line of business. In other words, when there is sub- contract of service of renting of motor vehicle.

19. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 19 (b) Partial Reverse Charge is applicable in limited cases The above-mentioned Reverse Charge Mechanism on three taxable services is applicable in following cases: (i)when such services are provided by any individual to a business entity registered as body corporate (ii)when such services are provided by any HUF to a business entity registered as body corporate (iii)when such services are provided by any partnership firm (whether registered or not) to a business entity registered as body corporate (iv)when such services are provided by any AOP to a business entity registered as body corporate

20. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 20 Clarification by Government 10.1.2 What does a service provider need to indicate on the invoice when he is liable to pay only a part of the liability under the partial reverse charge mechanism? 10.1.3 If the service provider is exempted being a SSI (turnover less than Rs. 10 lakhs), how will the reverse charge mechanism work? 10.1.4 Will the credit of such tax paid be available to the service recipient?

21. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 21 Clarification by Government 10.1.5 What shall be the point of taxation for the service recipient? When will he need to pay the service tax in respect of his liability? 10.1.6 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? 10.1.7 Is the reverse charge applicable on services provided and complete before 1.7.2012 though payments were made after 1.7.2012?

22. Mechanism and implication of expansion of reverse charge J.K.Mittal FCA, FCS,LLB 22 Apprehension of Trade & Industry  adversely affect the small and medium enterprises and in long run  increase in the paper work and compliance work, which will of course put additional cost on the service recipient  put more pressure on the existing manpower of the Department  serious problem both for the Department and the taxpayer in the reconciliation of service tax payment qua the same transaction

23. Refund of Cenvat Credit to the service provider providing services, on which service tax is payable on reverse charge sharing basis J.K.Mittal FCA, FCS,LLB 23 In view of the fact that certain percentage of the service tax shall be paid by the service recipient. Keeping in view the same, by Notification No. 28/2012-CE (NT), Cenvat Credit Rules have been amended and Rule 5B has been inserted to provide that if such a service provider is unable to utilize the Cenvat Credit on input and input services, he shall be allowed refund of such unutilized Cenvat Credit, subject to the procedure, safeguards, conditions and limitations, as may be specified by the Board by issuing Notification. Therefore, the Board would issue the Notification giving the detailed procedure and conditions for seeking the refund by the service provider of three specified services, where service tax is to be paid on sharing basis on reverse charge.

24. 24 ………Thank you……….. In the words of Mahatma Gandhi “You must not worry whether the desired result follows from your action or not, so long as your motive is pure, your means correct” 24J.K.Mittal FCA, FCS,LLB