Reverse Charge mechanism under Service Tax

1) What is Reverse Charge Mechanism (RCM) ?

A) Service Tax is charged by the service provider to the service recipient. Service Provider collects Service Tax from the Service Recipient and pays it to the Government. However, under RCM, the service provider is not liable to pay service tax or is liable to pay service tax up to a certain extent. The balance has to be paid by the service recipient on behalf of the service provider. Government has notified certain services to whom RCM will be applicable. The service tax on these services shall be paid by such person at such rates as notified. In brief, the service recipient will be liable to pay service tax at such percent as specified in the relevant rules.

2) To whom is RCM applicable?

A) Service tax payment under RCM is applicable only under the following circumstances:

i) The service provider is an individual, HUF or partnership firm (registered or unregistered) or association of persons located in the taxable territory

ii) The service is provided to a service recipient who is a body corporate i.e. a private/public limited company located in the taxable territory

If the above conditions are not met, service provider will be required to pay the entire service tax.

3) Services covered under reverse charge system vide Notification No. 30/2012-ST Dated-20^th June, 2012 with effect from 01.07.2012:

Sr. No.	Description of a Service	Service provider	Service Receiver	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
1.	Insurance Services: in respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business	Insurance Agent	Business man carrying on insurance business	Nil	100
2.	GTA: in respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road	Goods transport agency	Consignor or Consignee is specified person	Nil	100
3.	Sponsorship: in respect of services provided or agreed to be provided by way of sponsorship	Any person	Body corporate or partnership firm	Nil	100
4.	Arbitral Tribunal: in respect of services provided or agreed to be provided by an arbitral tribunal	Arbitral tribunal	Business entity	Nil	100
5.	Advocate Services: in respect of services provided or agreed to be provided by individual advocate	Individual Advocate	Business entity	Nil	100
5A.	A director of a company: In respect of services provided or agreed to be provided by a director of a company to the said company	A director of a company	To the said company	Nil	100
6.	Support Services: in respect of services provided or agreed to be provided by way of support service by Government or local authority	Government	Business entity	Nil	100
7.	Rent a Cab Service: (a) In respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on abated value. (b) In respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger on non-abated value.	Individual/HUF/ Proprietary or partnership firm/AOP	Company under Companies Act, 1956	Nil 60	100 40
8.	Supply of Manpower/ security services: in respect of services provided or agreed to be provided by way of supply of manpower for any purpose	Individual/HUF/ Proprietary or partnership firm/AOP	Company under Companies Act, 1956	25	75
9.	Works Contract Services: in respect of services provided or agreed to be provided by way of works contract	Individual/HUF/ Proprietary or partnership firm/AOP	Company under Companies Act, 1956	50	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	Any person	Any person	Nil	100

4) Registration & Returns

Under RCM, the service recipient will have to register as a service tax assessee & file service tax returns. The basic exemption limit of Rs. 10 lacs is not applicable to a service recipient. This means that even if the value of services received is below Rs. 10 lacs, even then service tax is payable at the applicable percentage.

5) Invoice & Service Tax Credit

Proper invoice should be issued by the service provider and only his portion of the service tax applicable should be mentioned on the invoice. It should be remembered that, service recipient cannot utilise cenvat credit cannot be utilised for payment of service tax. Consequently, service receiver has to pay service tax only in cash.

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