Abeted and not abeted value in rent a cab service, Service Tax

[Swapneswar muduli]

Dear Sir,

We are manufacturer and we availed the rent a cab service for carry our employees. ans few service providers are charge the service tax in the invoice on 50% of the invoice value. we paid rest service tax on 50% under RCM.

And some service providers are not charges any service tax in invoice due to not they have not cross their thresh hold limit. In this case also we paid the service tax on 50% of invoice value under RCM.

My query is.

1) Can we paid service tax on 40% of invoice value as per abetted scheme if we want to avail the abetted scheme what document we should from the service provider ?

2) As we are not taking Cenvat Credit of Service tax on car rental Service so this 10% is loss for company .

3) can you explain me about the abetted and non-abbeted scheme under rent a cab service under Reverse charge mechanism,

Regards

Swapneswar Muduli

Posts / Replies

[KASTURI SETHI]

If service provider avails abatement, 100% (after abatement of 60% =40%) liability of service tax is to be discharged by service recipient.Recipient can take full credit of service tax paid .Full credit means (40% ST paid). No cenvat credit to service provider availing abatement.

Abatement of 60% is admissible vide Notification No.26/12-ST dated 20.6.2012 as amended vide Notification No.No.8/14-ST dated 11.7.14.(ST is on 40% of value)

If service provider does not avail abatement, ST is to be paid on non-abated value and then ratio of payment of ST would be 50 : 50 i.e. 50% ST by Service Receiver and 50% by service provider. (Notification No.30/12-ST dated 20.6.12 as amended vide Notification No.10/14-ST dated 11.7.2014). 60 : 40 changed to 50 : 50 vide Notif. No. 10/14-ST dated 11.7.2014.

If service provider avails threshold exemption limit of ₹ 10 lakhs and does not pay ST being within exemption limit, service recipient will discharge his own liability i.e. 50% of 40%.

Non-abated value means not availing abatement and abated value means availing abatement.

No certificate or document is required from service provider to the effect whether he has availed abatement or not. Invoice of service provider is itself proof whether he has availed small scale exemption or not; whether he has availed abatement or not. Service recipient is responsible for his own liability. Service receiver has no concern with liability of service provider.

[MARIAPPAN GOVINDARAJAN]

Nice explanation Sethi Sir.

[KASTURI SETHI]

SH.MARIAPPAN GOVINDARAJAN Ji,

Thank You Sir. I am obliged and feel elated with your approval and appreciation.

[Ganeshan Kalyani]

Kasturi Sir with due respect I would like to discuss the last para in your reply. The service provider if he has not crossed the threshold then he will not charge service tax then there is no question for abatement even and in that case service tax on 50% value to be deposited by the recipient. However if he has crossed threshold then there comes an option for abatement and non abatement. If he has availed abatement then he will not charge service tax on invoice and same time he has to forego the input credit. in this case where he has opted for abatement will not known to the recipient as the recipient will assume that his turnover would not have crossed the basic limit and that is why he has not charged his portion of service tax. But recipient will not come to know that provider has opted for abatement. Hence the recipient will land up in paying service tax on 50% value instead of 40%. Hence I believe that provider must mention somewhere on the face of the invoice that he has availed abatement then only the recipient can choose to pay service tax on 40% of value. This is my view.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Every service provider is required to comply with Rule 4 A of Service tax Rules, while issuing the invoice to service receiver subject to specific exemptions provided to specific service provider, if any.(Abatement is also a kind of exemption) As per Rule 4 A(1)(iv) he will show service tax payable, value of service provided on the invoice. Service Tax payable means payable by the Service Provider. As a precautionary measure, service provider may on his own or at the request of service receiver may specifically mention percentage of service tax to be paid by the service receiver. Even without exhibit of these remarks service receiver is under statutory obligation to deposit his dues.

In case service provider has not crossed threshold exemption limit, it is obligatory on the part of service provider to exhibit the remarks, "Availing Small Scale Exemption". Similarly, if service provider avails abatement it is obligatory on his part to exhibit the remarks, "Availing abatement". Reasons have to be given for non-payment of full due Service Tax for clarification and convenience, otherwise service receiver will not come to know. It is safe for both. Similarly, in Central Excise, SSI unit availing exemption mention such remarks on the body of the invoice. It is pertinent to point out that it is a practice that every small scale service provider availing exemption or a manufacturer availing SSI exemption gives progressive total of the value on the back of each invoice (date-wise) to keep the track of sale value/service value so that mistake may not crop up regarding crossing the exemption limit

Now I want to make it further clear that in case Service Provider availing exemption or abatement does not exhibit remarks on the invoice, service receiver cannot be penalized for the default, if any, committed by the service provider. If service provider's invoice does not speak, then his records will speak and service receiver will not suffer on that score.

Statutorily, Service provider is not responsible for service receiver and service receiver is not responsible for service provider.Both have their own statutory obligation and their own independent method of valuation.

I hope now picture is clear.

[Ganeshan Kalyani]

Nicely explained by Kasturi Sir. Thanks.

[Akash Deep]

Dear Mr.Swapneswar

I noticed that as per your query some of the services providers are availing SSI exemption and you are paying tax on the invoices raised by such service provider on the 50% of the invoice value. what i understood from your query is that by paying tax on 50% of the invoices value you are discharging your part of service tax liability.

Notification No. 33/2012 exempts taxable services of aggregate value not exceeding ₹ 10 Lakh. However, it is also provided therein that nothing of this Notification shall apply to the such value of taxable services in respect of which service ax shall be paid by such person and in such manner as specified under section 68(2) read with ST Rules, 1994. In nutshell, if a service provider providing such services which has been notified under section 68(2) read with rule 2(1)(d) of ST Rules, SSI exemption benefit shall not be available to such person. Moving further, if a person provided services which are notified under section 68(2) and services other than notified services, then he should claim SSI exemption only in respect of services other than notified services and should discharge tax liability in respect of notified services even tough aggregate value of such all the services is less than ₹ 10 lakh.

Now, the services notified under section 68(2) is the "renting of a motor vehicle designed to carry passengers to any person who is not in similar line of business by an individual, HUF or a partnership firm whether registred or not, including association of person located in a taxable territory to any business entity registered as a body corporate in taxable territory. in respect of such notified service, the erson liable to pay tax are both service provider and service recipient.

from the above discussion one is very clear that as the services of renting of motor vehicle (motor vehicle also includes cab as per motor vehicle act) is a notified services so no SSI exemption is available to such service providers. in this situation your claim that some of the service provider are claiming SSI exemption does not seem proper. (i am assuming that such services providers are either individuals, HUF or partnership firms and you are an incorporated company).

if services provider are not individual, HUF or Partnership firm, this services will not be a notified service and transaction will not cover under reverse charge mechanism and service provider shall discharge tax liability as in normal course and may avail SSI exemption benefit.

In in nutshell if your transaction of receiving rent a cab services are a transaction covered under reverse charge mechanism service provides can not claim SSI exemption. if they are claiming, i guess there is some mistake in their understanding. SSI exemption and tax liability under reverse charge does not go hand in hand. The movement you say that service providers are claiming SSI exemption, it is inherent in the statement that services under consideration are not notified services under section 68(2). if you say that service providers are rightly claiming SSI exemption, in that situation you are wrongly paying tax under reverse charge mechanism.

Regards

Akash Deep

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[KASTURI SETHI]

Dear Sh.Akash Deep,

Your reply is an eye opener.

[Akash Deep]

Dear Kasturi Sir,

A more elaborated article on the issue is on the way. hoping yo have your comment on that

[KASTURI SETHI]

Dear Sh.Akash Deep,

Yes. Waiting eagerly for your article on this issue.

[Swapneswar muduli]

Dear Akash Deep Sir,

As i understood from your reply that the service provider under Rent a cab service he should not take the benefit of SSI Exemption of 10 lacs right ?

But there are most of small small service provider's are there whoa re not charging the service tax on their invoice due to they don't cross the turnover limit of 10 lacs and taking the benefit of SSI Exemption.

So in said above case the service providers are making mistake for taking the SSI Exemption ?

My query is if the service providers are making mistake as we are a service receiver we are not accountable for their mistake ?

Further can we take the benefit of abetted scheme as Cenvat not eligible for credit taken on car rental service we can paid the service tax on 40% of total invoice value instead of 50% of total value ?

Because as these are small small service provider they don't take the service credit so we can take one declaration from them regarding the they don't taken the Cenvat credit on input and Capital Goods.

So we can take the benefit of abetted scheme and we get the benefit of 10% of Service tax it ok if we apply this fundamental in our organization ?

Regards

Swapneswar Muduli

[KASTURI SETHI]

You are not accountable for mistake, if any, committed by the Service Provider.

[Akash Deep]

Dear Swapneswar

either wait for the article or if you want me to give advisory contact me on my number in in my profile.

[Swapneswar muduli]

Thank you very much sir

[Swapneswar muduli]

Dear Akash Deep Sir,

You Mentioned mob no in your profile is .0987346312 but its 9 digit so so i unable to contact with you.

Regards

Swapneswar Muduli

[Ganeshan Kalyani]

Swapneswar ji you have opened the door for Akashji now he may get many prospective calls. For this he should thank you.

[lokesh reddy]

Dear Mudil,

1. In Respect of service provided or agreed to be provided by way of renting of motor vehicle designed to carry passengers to a business entity registered as body corporate by a non body corporate then RCM liability will attract, The body corporate has to discharge the service tax liability.

2. On what value the company has to pay Tax.

a) If the service provider is taking abatement as per 26/2012, then the service provider liability is NIL and service receiver has to pay tax on 40% value.

b) If the service provider is not taking any abatement then Service provider has to discharge the liability on 50% of value of service and body corporate has to discharge service tax on the balance 50% of value of service.

The body corporate has to discharge the liability even his turnover is less than 10 Lakhs.

Normally most of the Rent a cab service providers will opt for abatement scheme as per 26/2012, and service receiver can pay service tax on 40% value. It will be idle to take a declaration from the service provider whether they are availing abatement or not.

[KASTURI SETHI]

Sh.Lokesh Reddy,

Pl. refer to the last line of your reply dated 23.1.16. As already mentioned in my reply dated 17.1.16, it is obligatory on the part of the service provider to exhibit remarks such as, "availing small scale exemption' "availing abatement" if they do so.

[Ganeshan Kalyani]

Agreed with the opinion of experts. Thanks

[Akash Deep]

Dear Swapneswar,

As I was out of town couldnt access internet. My number is 09873463912. call me any time.