Reverse charge method of service tax- further expansion in piecemeal manner- a major and wholesome inclusion of all small and less organized service providers is required for simplification and better control etc.

[C.A. DEV KUMAR KOTHARI]

Author has from time to time made suggestions to broad base list of services covered in reverse charge method for more effective collection, supervision, and control on collection as well as CENVAT credit etc. However, it appears that government is following slowly and in piecemeal manner by adding from time to time  few more service  instead of doing a wholesome exercise in a single go. For example, advocates have been brought under reverse charge method but not other professionals like CA,CMA,CS, Engineers, architects, management consultants, agents, brokers etc.

The requirement is to cover services provided by  all small  and less organized service providers like professionals, property owners, self employed service providers like contractors, and sub contractors … etc. under reverse charge method.

Problem of small and less organsied sector:

For small and less organized service providers greater problem is not about tax (because generally tax can be passed over to service receiver) but real problem is with administration and compliance of tax provisions. The service receiver can be entitled for CENVAT credit, therefore, he will not be in adverse position. Rather service receiver will be in better position to get credit of CENVAT as he will have evidence of actual payment of service tax on input services.

Therefore, collection of service tax under reverse charge method can be more effective as number of assesses will be much less , these assesses will be more organized and large sized concerns, the service tax department will also be in better position to inspect, examine, supervise, audit and keep regular check on tax collection, tax credit and refunds etc. taxmanagementindia.com

In case of tax like service tax where government have kept option to collect tax from service provider or service receiver it is always better to collect the same tax from lesser number of persons than greater number of tax payers.

Therefore, service providers who are fewer in number and are also regulated by other government agencies and also  have large number of service receivers (like telecom, internet, banks, share brokers….) should continue to be taxable as service providers (SP list).

On other hand service receivers which are large organizations, are lesser in numbers and have large number of service providers should be made liable to pay service tax on service availed from all service providers , except those covered by Service Providers (SP) list  

Latest notification:

Vide latest Notifications any company will be liable to pay service tax on reverse charges basis on payments to Non-employee Directors of Company (employee director – will be exempted in view of negative list).

Security   service will  also be  subjected to service tax under Reverse charge method. -Service Tax Notification No. 45 & 46 dt. 07.08.2012

Remuneration paid to any director who is employee of company and payment or perquisite is in nature of salary in consideration of such employment  held by director shall not be covered by this clause as the services rendered by employees is in negative list and is not subject to service tax either in hands of service provider (employee)  or service receiver (employer).

Security services has been given a new meaning as follows:

 “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;”

Discussions to this article

[JAMES PG]

The following observation is not factullay correct :

"The service receiver can be entitled for CENVAT credit, therefore, he will not be in adverse position. Rather service receiver will be in better position to get credit of CENVAT as he will have evidence of actual payment of service tax on input services."

Almost all buisness organisations hire taxis on monthly basis and majority of the service providers are under threshold limit of Rs 10 lacs, Effective from 1.07.12 onwards, service receiver has to pay ST under reverse charge and is not cenvatable since rent a cab servcies is excluded in the definition of input service under CCR. So also any construction service rendered by small service provider under works contract.  Apart from creating administrative hassles in making payment within time limit, it costs the reciever so long as it is not cenvatable