reverse charge mechanism

[Ganeshan Kalyani]

Hi,

i would like to discuss with reference to issue discussed in 108569 regarding service tax on rent-a-cab service.

with reference to Notification 26/2012 & 30/2012 the liability of service tax on - 1) abated value - service provider -NIL, service recipient -100% . 2) non-abated value - service provider -50%, service recipient -50%.

the point no. 2) above i.e. service tax liability on non-abated value is crystal clear. however, point no. 1 is a matter of discussion. if the value if abated then, as per Notification no.26/2012, the liability is 40% (60%abatement) on the condition that cenvat credit on input, capital goods and input service is not availed. it means if value is abated then liability is 40%. and Notification 30/2012 provides that service provider liability is NIL and recipient liability is 100%. Here, if we read both notification put together, then it is inferred that this 100% would mean only 40%. it means if value is abated then provider liability is NIL and recipient has to pay service tax on 40% of value of service. this mostly goes into confusion by user and for safer side, assessee tends to pay 100% service tax.

Request experts to present your valuable inputs in this regard.

[KASTURI SETHI]

I think in this case Service Receiver wants to share service tax liability 40% into ratio of 60% and 40% which is not feasible if we carefully read both Notifications in question. If Service Provider avails abatement of 60%, he loses cenvat credit on input, input service etc.. If Service Provider does not avail abatement, he can avail cenvat credit facility and liability of service tax is to be shared by 60% and 40%. In other words, sharing of liability of Service Tax is available only if Service Provider forfeits the right of abatement. Thus option is in hands of Service Provider. Either forfeit cenvat credit or abatement. 60% share of Service Provider is because of availment of cenvat credit otherwise. Service receiver is actually paying 40% which is mentioned 100% in reverse charge mechanism. He is correctly paying 100% (Which is actually 40 %).

It is further clarified that Service Provider may take abatement or cenvat credit, Service receiver's share works out to 40%( he may term it as 100%)

[JSW CEMENTLIMITED]

When the notification iiself talks of abated value then where is the question of confusion. 100% means 100% tax on abated value only.

V.Venkat Raman

[Ganeshan Kalyani]

Whether the service provider need to mention on the invoice that he has forfeited the right to avail cenvat credit. otherwise how would the receiver know which option to opt while paying service tax under reverse charge. it is implied that service provider has not taken abatement when he charge his portion of service tax on invoice. However if he choose to raise invoice on abated value and do not charge service tax on invoice. Is there any need to get remark on invoice stating that provider has chosen abated option. How would receiver prove during audit.Request your view in this regard.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Yes I agree with you in toto. Invoice to be issued by the Service Provider must bear the remarks, " Abatement of 60% has been availed."

[KASTURI SETHI]

JSW Cement Ltd.

Kind Attention : Sh.Nandyal Ji

I agree with you that there is no confusion. No doubt 100% means 100% tax on abated value. De facto, ST to be paid by service receiver works out 40%. Amount equal to 40% goes out of the pocket of service receiver or consumer.

AI Summary

Clarification on service tax for rent-a-cab services: reverse charge mechanism, abatement impact, and CENVAT credit rules. A forum participant raised a query about service tax on rent-a-cab services, focusing on the reverse charge mechanism and the implications of Notifications 26/2012 and 30/2012. The discussion highlighted confusion around service tax liability on abated values, where the service provider's liability is NIL, and the recipient's is 100%, interpreted as 40% due to abatement. Experts clarified that if the service provider avails abatement, they forfeit CENVAT credit, and the service receiver pays 40% of the abated value. It was suggested that invoices should indicate if abatement is availed to guide the service receiver during audits.