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TMI BlogREVERSE CHARGE IN SERVICE TAX - SOME ISSUESX X X X Extracts X X X X X X X X Extracts X X X X ..... REVERSE CHARGE IN SERVICE TAX - SOME ISSUES X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Receiver cannot avail the benefit of exemption scheme The exemption scheme is meant only for service providers. The exemption cannot be availed by service providers who are not liable to pay service tax on the services rendered by them. Similarly, service receivers who avail the services but are person liable to pay the tax under Section 68(2) as a special case are not the service providers. As such, service receivers cannot claim the benefit of exemption scheme. Thus, this scheme will not be of any benefit to either the service receiver or the service provider in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cases. Uptil 30 June, 2012, these included mutual fund distribution, services rendered from outside India, life insurance, general insurance auxiliary services, recipient of goods transport service etc. The exemption scheme does not apply to person liable under section 68(2) of the Finance Act, 1994 or person other than service providers as specified under rule 2(1)(d) of Service Tax Rules, 1994. To avail the exemption, the person should be a service provider only. However, CENVAT credit can be taken as per rules subject to fulfilment of the specified condition of being an input service Thus, exemption scheme meant for small service providers does not applied to following persons paying service tax under reverse charge method -- -- Reci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pient of service -- Importers of service -- Input service distributors -- Insurance agents -- Mutual fund AMC's -- Specified consignors or consignee for GTA services -- Sponsors for sponsorship services -- Service providers under franchise or brand. The reverse charge mechanism has been expanded w.e.f. 1 July 2012. As such, the service recipients of services such as arbitral tribunal, legal services, support services provided by the Government, renting of vehicles, works contracts, manpower supply, security services, director's service etc covered under reverse charge as per Notification No 30/2012-ST dated 20.6.2012 shall have to pay service tax and in such cases, benefit of exemption scheme will not be available to service receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. The service receiver is only liable to pay service tax and by doing so, he does not become service provider. The liability to pay service tax has only been shifted. Reverse Charge for Director's Services Service Tax is payable under reverse charge by the companies who receive services from their directors who are not in employment in terms of Rule 2(i)(d) (EE) of Service Tax Rules and Entry No. 5A of Notification No. 30/2012-ST dated 20.06.2012 (as amended by Notification No. 45 and 46/2012-ST dated 7.8.2012) Only individuals can become directors as per section 253 of the Companies Act, 1956, No body corporate, association or firm shall be appointed director of a company and only an individual shall be so appointed. However, individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als can be nominees of any company, association or any other entity including Government. Like in case of any Indian director, the services of any foreign director are also liable to Service Tax which shall be discharged by the company itself under reverse charge mechanism. A director may be appointed either in an individual capacity or to represent an entity (including government) who has either invested in the company or is otherwise authorized to nominate a director. When a director receives payment in his personal capacity, the same is liable to be taxed in the hands of the director. However, where the fee is charged by the entity appointing the director and is paid to such entity, the services shall be deemed to be supplied by such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n entity and not by the individual director. In the case of Government nominees, the services shall be deemed to be provided by the Government and liable to be taxed under the exclusion sub- (iv) of clause (a) of section 66D of the Finance Act, 1994 i.e. support services by Government to business. Such services are liable to be taxed on reverse charge basis. During the period from 1.7.2012 to 6.8.2012 (both days inclusive), the liability to pay Service Tax has to be discharged by the concerned director himself and not by the company. However, he / she shall be eligible for threshold exemption of Rs. 10 lakh in terms of Notification No. 33 / 2012-ST dated 20.06.2012. Entire amount (100 percent) of Service Tax shall be payable by the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any under reverse charge mechanism. Companies shall have to register themselves under service tax before making payment of service tax on services provided by directors under reverse charge mechanism. Where a person is a director in more than one company, whether all the companies in which he / she is a director, though the service provider is the same person (non-employed director himself), all the companies in which he is a director and are paying remuneration to him, shall be liable in their respective capacity to pay service tax on director's remuneration on reverse charge basis. This would also apply to subsidiary companies of the holding company. taxmanagementindia.com On a director requesting the company to pay Service Tax himself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rather than the company paying under reverse charge mechanism, nobody stops him form requesting the company but the law, as it stands is very clear. Service Tax has to be paid by the person liable to pay in terms of section 68(1) and 68(2) and there cannot be any deviation from the statutory provisions. However, there have been instances where Tribunal have held that Service Tax cannot be demanded twice on the same service [Refer Navyug Alloys Pvt. Ltd. v. CCE & C 2008 (8) TMI 100 - (Cestat, Ahmedabad); Invincible Security Services v. CCE 2008 (9) TMI 122 - CESTAT NEW DELHI. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 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.
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