MORE WIDE REVERSE CHARGE METHOD OF SERVICE TAX IS DESIRABLE – THAT WILL IMPROVE COLLECTION OF TAX CONSIDERABLY.

[C.A. DEV KUMAR KOTHARI]

Reverse charge method will improve tax collection, CENVAT credit etc:

Levy of service tax on reverse charge method will improve tax collection because service tax in not levied on many small service providers  due to exemption. Once their service falls under reverse charge method, the service rendered by them shall also be taxable in hands of service receivers. This will reduce exemption allowed to small  service providers.

Present Reverse charge scope:

At present vide  Notification No. 36/2004-ST, Dated 31/12/2004, as amended from time to time some services are subjected to ST under reverse charge method of collection. Through the  Finance Bill 2012 the scheme of taxation of services will be widened when it is enacted as an Act after receiving assent of the President. In expectation of the same Notifications have been issued which will come into force when some of the provisions of The Finance Bill become enactment. The scope of reverse charge method is to be widened in such eventuality as and when S.66B of The FA 2012 is enacted.

Notifications issued in hurry:

After the presentation of budget, some notifications have been issued, apparently in very hurried manner and in expectation that the proposals in the budget 2012-13 will definitely become law.For example the notification  No.15/2012-Service Tax  issued on  17.03.2012 is one such notification which   shall come into force from the date on which section 66B of the Finance Act, 1994 comes into effect. Therefore, it appears that undue hurry has been shown in issuing notifications . It is felt that more thought could be given and notifications could be issued at proper time, instead of issuing notifications just on the basis of proposals in the budget.

From THE FINANCE BILL, 2012

Amendment of Act 32 of 1994.

Charge of service tax on and after Finance Act, 2012.

CHAPTER V relating to SERVICE TAX

     '66B. There shall be levied a tax (hereinafter referred to as the service 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.

From the above clause in the Finance Bill we find that there will be significant change in the provision relating to charge of tax. However, this will be applicable only when the Finance Bill 2012 becomes the Finance Act 2012 when the President of India gives his assent.

More services could be brought under reverse charge method:

The relevant notification is reproduced below with highlights. Many new services will be added in the reverse charge system. However, in case of some services the extent of chargeability in hands of service provider and service receiver has been prescribed. It is not understandable whey both parties are proposed to be kept under obligation. A service in which service receivers are less in numbers and are more organized could be fully brought under the reverse charge method.

For an example

 Advocate practicing individually will fall under reverse charge method, there is no reason as to why firms of advocates could also be relieved of burden of ST and service receivers could be made liable to ST.

It is also suggested that  professionals like CA, CWA, CS, engineers, architects,  technicians, designers, service providers who provide services by renting or hiring of immovable and movable properties, service providers who provide labor , machines and material like  labor contractors,  repair and maintenance service providers, cleaning service provider,   small courier services,.. etc. and all such service providers who are large in numbers and are much less organized than the service receivers can be brought under reverse charge method.

Earlier articles:

The author has suggested wider reverse charge method from time to time by articles webhosted on this website and also published in other magazines. It is expected that suggestion of author to levy ST on service receivers who are much lesser in number in comparison to large number of service providers will go a long way in bringing more services and service providers in the tax net as service receiver will pay tax whereas service  providers is not liable to pay service tax.

The new and old notifications are reproduced below with highlights: