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Reverse Charge & Joint Charge Mechanism
By:
A.Saiprasad
B.Com, LLB, ACA, DISA, AMIMA
Advocate
Session Outline
Who is liable to pay Service Tax
Can Service Recipient be made liable to pay service tax
Historical Background.
Notification No.30/12 ST dt.20.6.12
Point of Taxation & Place of Provision of Service
Cenvat Credit Issues
Tax Shift V. Exemption
2
Background to GTA Service
Generally – Person providing taxable service. – S.68(1)
Exception – Tax on Such services, as notified by CG, shall be paid by such persons and in such manner as may be prescribed – s. 68(2)
Rule 2(1)(d) of STR, 94 r/w Notification No.30/12 ST
From 1.7.12 – Both service provider and service recipient made liable to pay ST for W/c, MPS, Security Service and Rent of motor vehicle service
3
Laghu Udyog Bharti Case, 1999 (112) ELT 365 (SC)
Customers of:
Clearing & Forwarding Agents
Goods Transport Operators
Made liable to pay ST
Charge of ST was on the person liable to collect ST (service provider)
Rule 2(d) of STR, 94 made service receiver as person liable to pay ST r/w S.68(1A)
4
Laghu Udyog Bharti Case, 1999 (112) ELT 365 (SC)
Charge on value of service, provided by person responsible for collecting service tax
Imposition is on person rendering the service
Assessee defined as person responsible for collecting service tax
“person responsible for collecting the service tax” means a person who is required to collect service tax or is required to pay any other sum of money under this Chapter
Rules require the service receiver to pay service tax
Rule 2(d)(xii)(xvii)
5
Laghu Udyog Bharti Case, 1999 (112) ELT 365 (SC)
SC held:
We have no hesitation in holding that the provisions of Rule 2(d)(xii) and (xvii), insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself. The said sub-rules are accordingly quashed.
6
Amendments to the Law
A’ee definition amended to include customers of truck operators and C & F agent
S.66 – Charging section amended – stating collection of ST shall be in such manner as may be prescribed.
Prescription – S.68(1) proviso r/w rule 2(d) prescribed service recipient as person liable to pay tax
7
Gujarat Ambuja Cements Ltd Case, 2006 (3) STR 608 (SC)
SC held:
The point at which the collection of the tax is to be made is a question of legislative convenience and part of the machinery for realization and recovery of the tax. The manner of the collection has been described as “an accident of administration; it is not of the essence of the duty”.
8
Gujarat Ambuja Cements Ltd Case, 2006 (3) STR 608 (SC)
SC held:
S.66 is the charging section provides for tax on rendering service.
S.68 is machinery provision which has cast duty on service recipient
R.2(d) not in conflict with charging section
Service Tax may be collected from service recipient.
9
History
Notification No.36/04 ST dt.31.12.04
Service Recipient made person liable to pay service tax
7 services
Notification No.15/12 ST rescinded Notification No.36/04.
Present Notification No.30/12 ST rescinded Notification No.15/12.
Amended by Notification No.45/12 ST dt.7.8.12
10
Person Liable to pay ST
Section 68(2) – Service Tax paid by Such persons and in Such Manner
Extent of ST payable by such person – from 1.7.12
Rule 2(1)(d), provides the list of services where service receiver is made liable to pay ST
In respect of service notified U/s 68(2)
Amendment to Rule 2(1)(d) makes both service provider and service receiver liable to ST from 1.7.12.
11
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
1. Services provided by an insurance agent to any person carrying on insurance business
Insurance Agent
Nil
Person Carrying
on Insurance Business
100%
12
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
2. Services provided by a GTA
GTA
Nil
Persons mentioned
u/r 2(1)(d)(B)
100%
13
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
3. Services provided by way of sponsorship
Any Person
Nil
Body Corporate/ Partnership
Firm
100%
14
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
4. Services provided by an arbitral tribunal
Arbitral Tribunal
Nil
Business Entity
100%
15
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
5. Services provided by individual advocate or a firm of advocates by way of legal services
Indl. Adv Firm of Adv.
Nil
Business Entity
100%
16
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
5A Services provided by a director of a company to the said company
Director
Nil
Said Company
100%
17
Person Liable to Pay Service Tax
Sl. No. Description of a service Service Provider
Service Receiver
6. Services 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
Gvt, Local Authority
Nil
Business Entity
100%
18
Person Liable to Pay Service Tax
Sl. No.
Description of a service Service Provider
Service Receiver
7. (a) Renting of MV, designed to carry passengers on abated value to any person who is not engaged in the similar line of business
Refer Note
Nil
Refer Note
100%
(b) Renting of MV, designed to carry passengers on non abated value to any person who is not engaged in the similar line of business
Refer Note
60%
Refer Note
40%
19
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
8. Manpower Supply & Security Service
Refer Note
25%
Refer Note
75 %
20
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
9. Service portion in execution of works contract
Refer Note
50%
Refer Note
50%
21
Person Liable to Pay Service Tax
Sl. No. Description of a service
Service Provider
Service Receiver
10. Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory
Located outside Taxable Territory
Nil
Located inside
Taxable Territory
100%
22
GTA Service
“goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called.
S.65B(26)
Any goods transport agency which provides service in relation to transport of goods by road in a goods carriage shall issue a consignment note [to the recipient of Service]
R.4B of STR, 94
23
GTA Service
“consignment note” means a document,
issued by a goods transport agency
against the receipt of goods
for the purpose of transport of goods
by road in a goods carriage,
which is serially numbered, and contains the names of
the consignor and consignee,
registration number of the goods carriage
details of the goods transported,
details of the place of origin and destination,
person liable for paying service tax whether consignor, consignee or the goods transport agency.]
24
GTA Service
Transportation by Auto, bullock cart, cycle ?
Not a declared service
58 services have been brought under the net so far. I propose to add some more this year. These are ….services provided by transport booking agents;…. I may clarify that there is no intention to levy service tax on truck owners or truck operators.
Para 149 of FM Speech, 8th July, 04
25
Truck Owners & Truck Operators
Self Employed driver of goods carriage
Truck owner or Truck operator of Goods Carriage
CCE V. Kanaka Durga Agro Oil Products Pvt Ltd
2009 (15) STR 399 (T)
Lakshminarayana Mining Co V. CST
2009 (16) STR 691 (T)
Affirmed by Kar HC in 2012 (26) STR 517 (Kar.)
KMB Granites Pvt Ltd V. CCE
2010 (19) STR 437 (T)
26
GTA Service
The recipient shall be liable to pay ST if and only if he is covered under one of the following entries:
(I) Factory registered under Factories Act, 1948
(II) Society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;
27
GTA Service
(III) Co-operative society established by or under any law;
(IV) Dealer of excisable goods, who is registered under the Central Excise Act, 1944
(V) Body corporate established, by or under any law;
(VI) Partnership firm whether registered or not under any law including association of persons;
28
GTA Service
Further, the service receiver would be either the consignor or consignee, depending on the person who has actually paid the freight.
What if both consignor and consignee are individuals, who do not fall under any of the six categories?
Who would be liable to pay ST ?
29
GTA Service
What if the service receiver (falling within the 6 categories), who has paid freight, is located in non taxable territory.
Service provider would be liable to pay ST. – Proviso to Rule 2(d)(B)
30
Exemptions relating to GTA
(a) agricultural produce;
(b) goods, where gross amount charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees;
Single Goods Carriage
(c) goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred fifty;
Single Consignee
Entry No.21 of Notification No.25/12 as amended
31
Exemptions relating to GTA
(d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;
(e) chemical fertilizer and oilcakes;
(f) newspaper or magazines registered with the Registrar of Newspapers;
(g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or
(h) defence or military equipments
Entry No.21 of Notification No.25/12 as amended
32
Exemptions relating to GTA
Services by way of giving on hire -
(a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or
(b) to a goods transport agency, a means of transportation of goods
Entry No.22 of Notification No.25/12 as amended
Entry No. 7 to Notification No.26/12 ST
75% Abatement
Cr on I/P, I/Ps, C.G. must not be availed by GTA
Certificate
33
GTA & Threshold Exemption
Notification No.33/12 ST dt.20.6.12
For Service Provider – Para 3
Payment received by such GTA
From person liable for paying service tax
As per 68(2) r/w Rule 2(1)(d)(B)
Shall not be taken into account
For Service Receiver – Proviso to Para 1
Nothing contained in this Ntfn shall apply to
Person liable to pay ST as per 68(2)
34
GTA & Cenvat Credit
Whether GTA is output service *2(p) “output service” means any service provided by a provider of service located in the taxable territory but shall not include a service, - (1) specified in section 66D of the Finance Act; or (2) where the whole of service tax is liable to be paid by the recipient of service.]
Whether GTA (service provider) can take cenvat credit?
Whether person liable to pay ST (service receiver) can take cenvat credit to pay GTA?
To be read with Rule 4(7) of CCR, 04
35
GTA & Cenvat Credit
[(7) The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received :
Provided that in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9 :
36
GTA & Cenvat Credit
Whether GTA (ST paid on freight) can be taken as Credit
Inward Freight
Outward Freight
CCE V. ABB Limited, 2011 (23) STR 97 (Kar)
Credit may be taken till 1.4.08
37
GTA & POTR
Notwithstanding anything contained in these rules,
POTR w.r.t services notified u/s 68(2),
shall be the date on which payment is made :
Provided that, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist
Rule 7
POTR w.r.t. service receiver i.e. person liable to pay ST
POTR w.r.t. service provider i.e. GTA ?
Rule 3 of the POTR
38
GTA & POPS
The place of provision of services of transportation of goods
Other than by way of mail or courier,
Shall be the place of destination of the goods :
POPS for GTA shall be
The location of the person liable to pay tax
What if location of person liable to pay tax O/s India
Proviso to Rule 2(1)(d)(B)
Provider of such service shall be liable to tax
39
Sponsorship Service
Receiver liable to pay ST if and only if
Service provided to:
Body Corporate
Partnership Firm
Located in taxable territory.
Body Corporate – Meaning as per Sec 2(7) of Companies Act, 1956
PF includes LLP – Rule 2(cd) of STR, 94
40
Arbitral Tribunal, Advocacy, Support Service by Govt
Receiver liable to pay ST if and only if
Service provided to Business Entity.
Business Entity defined U/s 65B(17)
Any person
Carrying out activity relating to
Industry, Commerce, Business or Profession.
Such BE located in taxable territory.
41
Arbitral Tribunal, Advocacy Service
Exemption U/n 25/12 ST dt.20.6.12
Services provided by-
(a) an arbitral tribunal to -
(i) any person other than a business entity; or
(ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year;
(b) an individual as an advocate or a partnership firm of advocates by way of legal services to,-
(i) an advocate or partnership firm of advocates providing legal services ;
(ii) any person other than a business entity; or
(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or
(c) a person represented on an arbitral tribunal to an arbitral tribunal
42
Negative Service – Government I
Service provided by Gvmt or Local Authority
Government – not defined in the Act
S.3(23) of General Clauses Act, 1897
Central Government – S.3(8) GCA
Art. 53, 77 of Constituion
Stated Government – S.3(60) GCA
Art 154, 166 of Constitution
Includes Union Territory
43
Negative List – I A
Local Authority – Defined U/s 65 B
A Panchayat – Article 243(d) of the Constitution
A Municipality - Article 243P(e) of the Constitution
A Municipal Committee/ District Board, with, the control or management of a municipal or local fund
A Cantonment Board – Sec. 3 of the Cantonments Act, 2006
A Regional/ District council - VI Schedule to the Constitution
A Development Board U/a 371 of the Constitution, or
A Regional Council U/a 371A of the Constitution.
44
Negative List – I B
Following Services by Govt, LA - TAXABLE, to the extent not covered elsewhere:
Speed Post, Express Parcel Post
Life Insurance & Agency Service
Performed by Postal Department
When provided by Postal Dept to Govt ?
Service in relation to
Aircraft or Vessel
Inside or Outside airport/ port
45
Negative List – I C Following Services by Govt,LA -TAXABLE, to the extent not
covered elsewhere: Transport of Goods or Passengers
Covered Elsewhere in clause (o) Support Services
Other than 3 services mentioned above
Provided to Business Entities. Payment of Service Tax
S.68(2) r/w Rule 2(1)(d)(iv) of STR,94
3 services mentioned before – Regn Concerned Gov/ Dep
Support Services except RIP – Service Receiver
Notification No.30/12 ST dt.20.6.12 –Para I(A)(iv) r/w Entry No.6
46
Negative List – I D
Support Service – Defined U/s 65B(49) - Means
Infrastructural, operational, administrative, logistic, marketing or any other support of any kind
Comprising functions that entities carry out in ordinary course of operations themselves
But may obtain by outsourcing from others and
Shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis;
47
Renting of Motor Car, Manpower Supply, Security Service & Works Contract Service
Receiver liable to pay ST if and only if:
Service provided by:
Individual
HUF
Partnership Firm, including AOP
Service receiver is a Business Entity, registered as a Body Corporate (Co)
Both Service provider and Service receiver located in taxable territory
48
Manpower Supply, Security Service Works Contract Service definition
Given Under Rule 2 of STR, 94
[(fa) “security 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;]
(g) “supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.]
49
Manpower Supply, Security Service Works Contract Service definition
Given Under Sec 65B(54) of FA, 94
(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;
50
Renting of Motor Car - Abatement
Sl.No. Description of taxable service Abatement Conditions
(1) (2) (3) (4)
9 Renting of any motor vehicle designed to carry passengers
60 No credit of input, input service &
capital goods are availed
51
52
Renting of MV
Without Abatement
SP – 60%
SP Charges ST on 60% in Inv
Collects Tax on 60% & Remits
to Govt
SR – 40%
Pays Value + Tax on 60% to
SP
Pays 40% through GAR 7
With Abatement
Abatement Claimed by SP
Abatement – 60%
SR pays 100% of 40%
Works Contract Alternative methods of valuation available as pre Rule 2A of
Valn Rules
(a) Value = (Gross Amount – Amount of materials on which VAT has been paid, if VAT paid on actual value of materials)
(b) Value = 40%, 60% or 70% of Total Amount
Total Amount = Gross Amount + FMV of Goods supplied + FMV of Services supplied – Amount charged for such Goods/ Services – VAT
In Notification No.30/12 ST dt.20.6.12
Explanation-II. - 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
53
Who has to get registered
Under Reverse Charge mechanism
Should service receiver get registered ?
Should service provider also get registered ?
What if the contractual agreement between service provider and receiver states that service provider must pay ST for the specific service?
54
Cenvat Credit
Cr Can be availed by SR, if it fulfills the definition of Input Service U/r 2(l) of CCR, 04
As regards RCM services, full Cr would be available to Service Recipient (SR) – since 100% paid by SR.
As regards JCM,
Whether 100% Cr would be available to SR or only the respective amount paid?
Whether service provider, who has paid partial amount can claim Cr?
55
Cenvat Credit
Whether Cenvat Cr can be used to make payment by service recipient when service tax is payable by him as recipient of service
Explanation to Rule 3(4) of CCR, 04
Refund of Credit U/r 5B of CCR, 04
Refund given to Service Providers
For Joint Charge Services Only
U/n 12/2014 CE (NT) dt.3.3.14
56
57
Cenvat Credit
ST payable by SP
SR avails Cr on receipt of Invoice
SR must pay value + ST within 3m from date of SP’s Inv
If payment not made within 3m, Cr to be reversed the next day
SR can again take Cr on the date of payment of Inv value + ST to SP
ST payable by SR
SR avails Cr on payment of ST
SR must pay ST within 6m from the date of SP’s Inv
If ST not paid as above, ST to be paid from Inv due date along with interest
for 6m
RCM, JCM Vis-à-vis SSP exemption
Whether service provider providing services on RCM, JCM eligible for SSP exemption benefit U/n 33/12 ST?
If eligible and availed by provider:
In case of RCM, whether service receiver not liable to pay ST.
Proviso to Para 1 of Notification No.33/12 ST.
58
RCM, JCM Vis-à-vis SSP exemption
In case of JCM
Can the Service provider avail benefit of exemption U/n 33/12 ST
Can the Service receiver avail benefit of exemption U/n 33/12 ST
Would service receiver end up paying ST whereas service provider does not pay his respective share ?
59
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