Reverses Charge & Abatement in Services Tax

[sukhvinder singh]

Respected all,

 

Please tell me the Meaning & their difference of Reverses Charge & Abatement in Services Tax.

Please tell me with an example.

Thanks & Regards

 

 

[DALJITSINGH CHHABRA]

Dear Sukhwinder Singh

The reverse charge and abetment are two different provisions under Service Tax Rules.

The reverse charges means clearing the laibilty under service tax by person receving service. As you know the liabilty

to collect and deposit the service tax is on Service Providers. whereas under reverse charge it is the service receiver who deposit the service tax on services being received. As in the case of services provided by Advocates to their clients, the liabilty to deposit the service tax will be on clients.

Next as for as the abetment is concernd it is the amount of service or % of value of service tax exempt from service tax. The recently the same has been notified in Notification no 26/2012- Service Tax New Delhi, the 20^th June, 2012 . Plz consult the same.

 

[dipsang vadhel]

Reverse charge:

Normally, service tax is payable by the person who is providing the taxable service. However, the Central Government is empowered under Section 68(2) to notify the specified persons who are liable to pay service tax in respect of notified taxable services. At times, when service receiver is liable to pay service Tax, it is known as payment of Service Tax under “Reverse Charge Mechanism”.

In the budget of 2012-13, a proviso has been inserted wherein the Central Government can notify the specified services and the extent of service tax which shall be payable by service receiver and the remaining part of the service tax shall be paid by the service provider. In other words, by insertion these provisos both the service recipient and the service provider together are required to pay the respective share of service tax liability.

The Government has issued Notificaion No. 15/2012-ST dated 17.03.2012 &  Notification No. 30/2012-ST dated 20.6.2012, under section 68(2) by notifying the following taxable services and the extent of service tax payable thereon by the person liable to pay service tax where in Portion of service tax payable by the recipient and by the service provider has been defined.

Thus, fact that a service is under reverse charge or not will determine who will pay Tax Govt Treasury. Further, the portion of Tax to be paid in respect of service under reverse charge also varies according to nature of service.

For example, at present, Services of Supply of manpower provided by Individual, HUF, Firm or AOP to business entity is under reverse charge mechanism. In such case, 25% of Tax payable is to be paid by Service provider and 75% of tax payable is to be paid by Service receiver.

Suppose, Manpower supply agency (firm) provide services of supply of manpower to X ltd and charge Rs.1000/-.In such case, total service Tax payable would be :

Gross amount                                                                  Rs.1000

Less: abatement                                                                   Nil

Taxable Value                                                                   Rs.1000

Total tax payable   (12.36% of Rs.1000)                       Rs.123.60

 25% of Tax payable Rs.123.60 (i.e.Rs.30.90) is payable by Manpower supply agency in Govt Treasury. Manpower supply agency will charge only Rs.30.90 in invoice raised on X ltd.

 X ltd will be required to pay Rs.92.70 (75% of Rs.123.60) in Govt treasury.

Abatement:

Dictionary meaning of abatement is "Reduction, Decrease or discount." In reference to service tax, this term is used for amount liable to be reduced from value of taxable service as per finance act and rules therein.

All abatements available to services of specified categories have now been merged in Notification no 26/2012-ST dated 20/6/12.

For example, suppose, Services of Supply of manpower provided by Individual, HUF, Firm or AOP to business entity is having abatement of 75%. In that case if Manpower supply agency (firm) provide services of supply of manpower to X ltd and charge Rs.1000/-.The total service Tax payable would be:

Gross amount                                                                  Rs.1000

Less: abatement (75% of Rs.1000)                               Rs.750

Taxable Value                                                                   Rs.250

Total tax payable   (12.36% of Rs.250)                       Rs.30.90

Thus, abatement has direct impact on value on which service Tax payable and on amount of tax  and does not determine who will pay such tax in Govt treasury, while Reverse charge mechanism has no impact on value on which tax is payable and on amount of Tax  but determine the who will deposit what portion of Tax in govt treasury.

AI Summary

Reverse charge determines which party deposits service tax, while abatement reduces the taxable value on which tax is computed. Reverse charge reallocates the obligation to deposit service tax to the recipient or other notified person and may split liability between provider and recipient by notification, without changing the taxable value. Abatement permits a specified reduction from the gross amount to determine taxable value, thereby reducing the tax base and tax payable, but it does not affect which party must remit the tax.