Person Liable to Pay Service Tax - Service Tax Practice Manual / Ready Reckoner - Service Tax

Person Liable to Pay Service Tax (Reverse Charge Mechanism) Section 68(2) empowers the Central Government to notify the person who is liable to pay service tax other than the person who is providing the service. Section 68(2) states that, notwithstanding anything contained in sub-section (1), in respect of any taxable service 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. . (Reverse Charge) Further it states 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. (Partial Reverse Charge) Accordingly the Central Government has first time issued a notification exercising the powers under section 68(2 ) no. 36/2004 ST dated 31/12/2004 , specifying the services for which the prescribed person under rule 2(1)(d) shall be liable to pay service tax. This notification is now superseded by Notification No.30/2012-ST, dated 20-06-2012 as amended by notification No.45/2012-ST dated 7-8-2012 , 10/2014-ST dated 11-7-2014 and 07/2015-ST dated 01-03-2015 . Notification No.30/2012-ST, dated 20-06-2012 , as amended. Also See: Reverse Charge Persons liable to pay service tax under section 68(2) and Cenvat Credit - CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient. Notification No. 28/2012- C.E.(N.T) dated 20-6-2012, w.e.f. 1-7-2012. However, such person can avail the benefit of Cenvat Credit for the service tax paid as above. This credit will be available only after when service tax is paid to the government. Persons liable to pay service tax under section 68(2) and Exemption of ₹ 10 Lakhs under notification no.33/2012 -ST dated 20-6-2012 - The persons who are liable to pay service tax under section 68(2) in the capacity of recipient of services, shall not be entitled to avail the benefit of exemption provided to small service provider upto ₹ 10 lakhs. Whether liability of person liable to pay service tax under section 68(2) can be discharged by the person providing the service No, there is no scope in the section 68(2) read with notification no. 30/2012 and rule 2(1)(d) that the provider of services may discharge the liability of person specified under these provisions. For an example, a transporter cannot pay service tax on the consignment where the consignee or consignor is liable to pay service tax under the above provisions. Text of CBEC s Educational Guide on Partial Reverse Charge 10.1 Partial Reverse Charge With effect from 1.7.2012 a new scheme of taxation is being brought into effect whereby the liability of payment of service tax shall be both on the service provider and the service recipient. Usually such liability is affixed either on the service provider or the service recipient, but in specified services and in specified conditions, such liability shall be on both the service provider and the service recipient. The enabling provision has been provided by insertion of proviso to section 68 in the Finance Act, 2012 as per which Central Government may notify the service and the extent of service tax which shall be payable by such person and the provisions of Chapter V 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. Under this clause the Central government has issued notification no. 30/2012 dated 20.6.2012 notifying the description of specified services when provided in the manner so specified where part of the service tax has to be paid by the service receiver. The extent to which tax liability has to be discharged by the service receiver has also been specified in the said notification. The manner of operation of the reverse charge mechanism has been explained in this point. 10.1.1 What are the services on which such partial reverse change mechanism shall be applicable? In terms of serial nos. 7(b) and 9 of the table in notification no. 30/2012 dated 20.6.12, the new partial reverse charge mechanism is applicable to services provided or agreed to be provided by way of (a) Renting of a motor vehicle designed to carry passengers on non-abated value to any person who is not engaged in a similar business, or (b) Service portion in execution of a 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 a body corporate located in the taxable territory. Thus the nature of the service and the status of both the service provider and service receiver are important to determine the applicability of partial reverse charge provisions. 10.1.2 What does a service provider need to indicate on the invoice when he is liable to pay only a part of the liability under the partial reverse charge mechanism? The service provider shall issue an invoice complying with Rule 4A of the Service Tax Rules1994. Thus the invoice shall indicate the name, address and the registration number of the service provider; the name and address of the person receiving taxable service; the description and value of taxable service provided or agreed to be provided; and the service tax payable thereon. As per clause (iv) of sub-rule (1) of the said rule 4A the service tax payable thereon has to be indicated. The service tax payable would include service tax payable by the service provider. 10.1.3 If the service provider is exempted being a SSI (turnover less than ₹ 10 lakhs), how will the reverse charge mechanism work? The liability of the service provider and service recipient are different and independent of each other. Thus in case the service provider is availing exemption owing to turnover being less than ₹ 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is obliged to pay under the partial reverse charge mechanism. 10.1.4 Will the credit of such tax paid be available to the service recipient? Normally, the credit of the entire tax paid on the service received by the service receiver would be available to the service recipient subject to the provisions of the CENVAT Credit Rules 2004. The credit of tax paid by the service provider would be available on the basis of the invoice subject to the conditions specified in the CENVAT Credit Rules 2004 . The credit of tax paid by the service recipient under partial reverse charge would be available on the basis on the tax payment challan, again subject to conditions specified in the said Rules. 10.1.6 How is the service recipient required to calculate his tax liability under partial reverse charge mechanism? How will the service recipient know which abatement or valuation option has been exercised by the service provider? The service recipient would need to discharge liability only on the payments made by him. Thus the assessable value would be calculated on such payments done (Free of Cost material supplied and out of pocket expenses reimbursed or incurred on behalf of the service provider need to be included in the assessable value in terms of Valuation Rules. The invoice raised by the service provider would normally indicate the abatement taken or method of valuation used for arriving at the taxable value. However since the liability of the service provider and service recipient are different and independent of each other, the service recipient can independently avail or forgo an abatement or choose a valuation option depending upon the ease, data available and economics. 10.1.7 Is the reverse charge applicable on services provided and completes before 1.7.2012 though payments were made after 1.7.2012? For any service whose point of taxation has been determined and whole liability affixed before 1.7.2012 the new provisions will not apply. Merely because payments are being made after 1.7.2012 will not add any additional liability on the service receiver in respect of such services.