Reverse/ Joint Charge - Planning?

[Madhukar N Hiregange]

The common citizen, the trader [ big & small], small scale service providers, manufacturers who in normal course are not providing services would not be registered under service tax. Generally such persons would not like to be registered as it is a hassle, transaction costs would increase but at the same time they wish to be tax compliant.

The reverse charge mechanism as well as the joint charge mechanism are normally not applicable to the Government or individual. In some cases the non business entities/ charitable organisations and partnership firms have also been excluded from this charge. In case of services from outside India specifically the individual, Government { including authorities} and Charitable entities under Sec. 12AA of IT Act for providing charitable activities have been excluded in entry 34 of mega exemption.

This article examines what one can do practically to mitigate the need to pay service tax under reverse/ joint charge without breaking the law.

In this article we look at the possible avoiding of the liability within the 4 corners of law.

1. Usage of GTO – Transportation of goods by road has been excluded from the levy other than for GTA or Courier. The normal tempo transportation, lorry transportations without the help of a booking agent would therefore not be covered at all. Separate freight account for transportation maybe maintained.

2. GTA – Outward- For sales the contract could be that the customer is liable and freight could be on to pay. In case of exigencies where the supplier has to pay he is only paying on behalf of the customer and customer alone would be liable. The person liable to pay is required to comply. Additionally the customer would be eligible for cenvat credit.

3. GTA- Inward – For purchases the contract could be that the supplier is liable and freight would have been paid already. In exigencies if receiver pays it would only be on behalf of the supplier. Again credit available.

4. Procure services of vehicle hire, manpower supply, security, works contract from the corporate service providers. In that case the provider would be liable.

5. Another alternative is that under the principle that tax cannot be paid twice, ask the provider to charge 100 percent and provide proof of having paid to the exchequer.

6. Do not provide any sponsorship. If at all required advertise.

7. Convert the manpower supplier into a higher value added service provider with responsibility – cleaning services, disinfecting services, house keeping services etc. The maintenance of measurement book in case of construction, log in case of other activities to prove that payment is for the work completed may also fortify this method. Clauses on damages/ penalties for deficient work could also prove beyond doubt that the responsibility lies with the service provider.

8. Convert the works contractor into a pure labour contract of say construction, painting etc, by supplying all the material.

9. Avail legal services from only business entities not individual lawyers or look for alternative professionals providing similar services like CWAs/ CS or CAs.

10. Do not import any services – look for their counterparts/ subsidiaries in India.

11. Do not avail any services from Government which are also provided by private parties. Take it from private parties.

12. … a few more possible on deeper understanding

Note- There could be a few situations like Directors Fess and exceptional instances where one may require to be registered or as the amount is not large would comply along with interest and possible penalties.

Only in India we find such atrocious laws being put in place where the Government of India even today does not maintain proper accounts and is not subjected to any audit. The amounts involved in each year of collections and expenditure together are Rs. 30,00,000 Crores!!! It also exempts itself from most of the compliances by putting the responsibility on the other side wherever applicable. At least the reverse/ joint charge should be exempted overall upto Rs. 10 lakhs for all. Readers are encouraged to respond with other possibilities which would help all to comply better. Representation on scrapping the joint charge in the upcoming budget may well be a way forward in reforms.

Discussions to this article

[CA.Tarun Agarwalla]

Dear Sir

the article is really very informative and precise too. sir i have a little doubt over the point no 5 where it seems that in case of joint charge if service provider invoices and collects and discharge 100 percent tax then it could save the reverse charge liability , basing on the principle of taxation of a transaction once.

sir doubt comes that the liability under section 68(2) , how can be mitigated ? sir request your good self to kindly through some light on the issue.

thanks and regards

CA. Tarun Agarwalla, Bhubaneswar

[Madhukar N Hiregange]

There are a number of cases in regard to GTA + recently some others where the collection of tax only under authority of law as per the Constitution of Indiahas been held valid. You can mitigate the issue by sending a letter by speed post to dept with the case law.

[Dharmnath Avhad]

Sir i am surprised that you are. Soliciting clients towards C. A.S by advising " not to engage lawyers". In fact there is no NET benefit or loss by whatever method you go.If receiver pays,under reverse charge, he gets input cr. If provider collects and pay, receiver gets input cr. Directly advising clients not to engage advocates is unbecoming of C. A. 

SORRY BUT CANT AGREE WITH YOUR VIEWS

ADV AVHAD

[MARIAPPAN GOVINDARAJAN]

The views of Shri  Dharmnath Avhad is absolutely correct.

M. Govindarajan

[Pawan Singla]

In case Legal Services from individual Lawyer, turnover cirtieria of the assessee is Rs. 10 lacs.

What do you mean by the Turnover, is it turnover related to tunover under Service Tax Act or it is under Sales Tax or Gross Receipts, when the assessee not service provider at all.

[Madhukar N Hiregange]

We work closely with a number of advocates in Bangalore and in fact feel that for many legal issues they are better off than us as CAs. No intention of soliciting. It is similar to the suggestion that one can avail the services from a pvt ltd co instead of individual if one wishes to avoid the payment under RC/JC