SERVICE TAX LAIBILTIY OF ANY PERSON OTHER THAN SERVICE PROVIDER

[Mr. M. GOVINDARAJAN]

Section 68 (1) of the Finance Act, 1994 (‘Act’ for short) provides for the liability of paying service tax by the service provider.  Section 68 (2) of the Act provides that, other than service provider, in respect of such taxable services as may be notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in section 66B and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.  The proviso to Section 68 (2) provides that the Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of this Chapter shall apply to such person to the extent so specified and the remaining part of the service tax shall be paid by the service provider.

Section 65B (37) defines the term ‘person’.  According to this section the term ‘person’ includes the following:

• an individual;
• a Hindu Undivided Family;
• a company;
• a society;
• a limited liability partnership;
• a firm;
• an association of persons or body of individuals, whether incorporated or not;
• Government;
• a local authority; or
• every artificial person, not falling within the above.

Vide Notification No. 30/2012-ST, dated 20.06.2012 the Government introduced the Reverse Charge Mechanism i.e., the service tax is made liable to be paid by the service receiver.  The Central Government hereby notifies the following taxable services and the extent of service tax payable thereon by the person liable to pay service tax for the purposes of the said sub-section, namely:-

Taxable services

The following are the taxable services for this purpose (as amended up to 11.07.2014):

• provided or agreed to be provided  by an insurance agent to any person carrying on the insurance business;

• provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company;
• provided or agreed to be provided  by a goods transport agency in respect of  transportation  of goods by road, where the  person liable to pay freight    is,-

• any factory registered under or governed by the Factories Act, 1948
• any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India;
• any co-operative society established by or under any law;
• any dealer of excisable goods, who is registered under the Central Excise Act, 1944  or the rules made there under;
• any body corporate established, by or under any law; or
• any partnership firm whether registered or not under any law including association of persons;

• provided or agreed to be provided by way of sponsorship  to anybody corporate or partnership firm located in the taxable territory;
• provided or agreed to be provided by,-

• an arbitral tribunal, or
•  an individual advocate or a firm of advocates by way of legal services, or
• Government or local authority by way of support service excluding,-

• renting of  immovable property, and
• services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994,

to any business entity located in the taxable territory;

• provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate;
• provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers to any person who is not in the similar line of business or supply of manpower for any purpose or security services or service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory;

The taxable services provided or agreed to be provided by any person which  is located in a non-taxable territory and received by any person located in the taxable territory.

Extent of service tax payable

The extent of service tax payable thereon by the person who  provides the service and the person who receives the service for the taxable services specified in (I) shall be as specified in the following Table, namely:-”

Table

Sl. No.	Description of service	%age of tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
(1)	(2)	(3)	(4)
1	in respect of  services  provided or agreed to be provided  by an insurance agent to any person carrying on insurance business	Nil	100%
2	in respect of services provided or agreed to be provided by a recovery agent to a banking company or a financial institution or a non-banking financial company	Nil	100%
3	in respect of  services  provided or agreed to be provided  by a goods transport agency in respect of transportation  of goods by road	Nil	100%
4	in respect of  services  provided or agreed to be provided  by way of sponsorship	Nil	100%
5	in respect of  services  provided or agreed to be provided  by an arbitral tribunal	Nil	100%
6	in respect of  services  provided or agreed to be provided  by individual advocate or a firm of advocates by way of legal services	Nil	100%
7	in respect of services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate	Nil	100%
8	in respect of  services  provided or agreed to be 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	Nil	100%
9	(a)   in respect of  services  provided or agreed to be provided  by way of renting of a  motor vehicle designed to carry passengers on abated value to any person who is not engaged in the similar line of business (b)   in respect of  services  provided or agreed to be provided  by way of renting of a  motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business	Nil         50%	100%         50%
10	in respect of  services  provided or agreed to be provided  by way of supply of manpower for any purpose 4[or security services]	25%	75%
11	in respect of  services  provided or agreed to be provided  in service portion in execution  of works contract	50%	50%
12	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	Nil	100%

Threshold exemption of ₹ 10 lakhs is not available to the service recipients.         

Vide Notification No. 07/2015-Service tax, dated 01.03.2015 amendments have been brought by the Government for the Notification No. 30/2012-ST, dated 20.06.2012.   The following taxable services are inserted:

• taxable services provided or agreed to be provided by a mutual fund agent or distributor to a mutual fund or asset management company;
• taxable services provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent;
• taxable services provided or agreed to be provided by a person involving an aggregator in any manner.

The column No.4 in the above table has been substituted as Percentage of service tax payable by any person liable for paying service tax other than the service provider.

This change has been considered as a serious change in the service tax liability on account of reverse charge mechanism.  By this substitution any person, coming under the definition of person may be attached with the liability of service tax.   He may not be a service provider or service recipient.   However he can be made liable.   The term ‘any person liable for paying service tax other than the service provider’ has not been defined or explained in the said Notification.  Even no clarification has been issued by the Department in this regard to who may be covered under this category.

This change seems to be akin to the Section 87 which deals with the recovery of any amount due to Government.  The provisions of Section 87 read as follows:

87. Where any amount payable by a person to the credit of the Central Government under any of the provisions of this Chapter or of the rules made there under is not paid, the Central Excise Officer shall proceed to recover the amount by one or more of the modes mentioned below:-

 (a)  the Central Excise Officer may deduct or may require any other Central Excise Officer or any officer of customs to deduct the amount so payable from any money owing to such person which may be under the control of the said Central Excise Officer or any officer of customs;

 (b)  (i)  the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount;

 (ii)  every person to whom a notice is issued under this section shall be bound to comply with such notice, and in particular, where any such notice is issued to a post office, banking company or an insurer, it shall not be necessary to produce any pass book, deposit receipt, policy or any other document for the purpose of any entry, endorsement or the like being made before payment is made, notwithstanding any rule, practice or requirement to the contrary;

 (iii)  in a case where the person to whom a notice under this section is sent, fails to make the payment in pursuance thereof to the Central Government, he shall be deemed to be an assessee in default in respect of the amount specified in the notice and all the consequences of this Chapter shall follow;

 (c)  the Central Excise Officer may, on an authorization by the Commissioner of Central Excise, in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus amount, if any, to such person;

²[Provided that where the person (hereinafter referred to as predecessor) from whom the service tax or any other sums of any kind, as specified in this section, is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all goods, in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining the written approval of the Commissioner of Central Excise, for the purposes of recovering such service tax or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.

 (d)  the Central Excise Officer may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector of the district in which such person owns any property or resides or carries on his business and the said Collector, on receipt of such certificate, shall proceed to recover from such person the amount specified there under as if it were an arrear of land revenue.

Section 87 itself is considered as stringent provisions.  The High Courts stayed actions taken by the Department under this Section. 

The above said amendment brings another stringent provision making liable any person for the payment of service tax other than the service provider.  This also will bring into many a litigation.   The GST is going to be introduced in the next year i.e., from 01.04.2016 as declared by the Hon’ble Finance Minister.   Constitution amendment bill for this purpose has been introduced in the Lok Sabha.   In such circumstances it is felt such change of law is not required and the Ministry is to reconsider the same.

The views of the experts are solicited.