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Presented By J.K. MITTAL (Advocate) Chairman, Indirect Taxes Committee, PHDCCI

J.K.Mittal FCA, FCS,LLB. Reverse Charge. 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.

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Presented By J.K. MITTAL (Advocate) Chairman, Indirect Taxes Committee, PHDCCI

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  1. J.K.Mittal FCA, FCS,LLB Reverse Charge 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 J.K.Mittal FCA, FCS,LLB

  2. Mechanism and implication of expansion of reverse charge • 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. J.K.Mittal FCA, FCS,LLB

  3. Reverse Charge Mechanism J.K.Mittal FCA, FCS,LLB 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… 3

  4. Reverse Charge Mechanism J.K.Mittal FCA, FCS,LLB 4

  5. Reverse charge on sharing basis for specified services J.K.Mittal FCA, FCS,LLB 5

  6. Mechanism and implication of expansion of reverse charge • (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. J.K.Mittal FCA, FCS,LLB

  7. Mechanism and implication of expansion of reverse charge • (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. J.K.Mittal FCA, FCS,LLB

  8. Mechanism and implication of expansion of reverse charge (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. J.K.Mittal FCA, FCS,LLB

  9. Mechanism and implication of expansion of reverse charge 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. J.K.Mittal FCA, FCS,LLB

  10. Mechanism and implication of expansion of reverse charge (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 J.K.Mittal FCA, FCS,LLB

  11. Reverse charge on sharing basis for specified servicesamendment w.e.f. 07.08.12 see Notification No. 45 &46 J.K.Mittal FCA, FCS,LLB 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)] 11

  12. Mechanism and implication of expansion of reverse charge “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)] J.K.Mittal FCA, FCS,LLB

  13. Mechanism and implication of expansion of reverse charge 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. J.K.Mittal FCA, FCS,LLB

  14. Mechanism and implication of expansion of reverse charge – meaning ‘works contract’ 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” J.K.Mittal FCA, FCS,LLB

  15. Works Contract means– Rule 2A of Valuation Rules (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; J.K.Mittal FCA, FCS,LLB

  16. Works Contract– Rule 2A of Valuation Rules (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; J.K.Mittal FCA, FCS,LLB

  17. Works Contract– Rule 2A of Valuation Rules 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; J.K.Mittal FCA, FCS,LLB

  18. Mechanism and implication of expansion of reverse charge (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. J.K.Mittal FCA, FCS,LLB

  19. Mechanism and implication of expansion of reverse charge (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 J.K.Mittal FCA, FCS,LLB

  20. Mechanism and implication of expansion of reverse charge 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 thanRs. 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? J.K.Mittal FCA, FCS,LLB

  21. Mechanism and implication of expansion of reverse charge 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? J.K.Mittal FCA, FCS,LLB

  22. Mechanism and implication of expansion of reverse charge • 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 J.K.Mittal FCA, FCS,LLB

  23. Refund of Cenvat Credit to the service provider providing services, on which service tax is payable on reverse charge sharing basis 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. J.K.Mittal FCA, FCS,LLB

  24. 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” ………Thank you……….. 24 J.K.Mittal FCA, FCS,LLB

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