Service tax: Applicability of RCM on Work contract services to Govt

[ROHIT GOEL]

Dear Experts,

One of our client is under appeal in service tax matter and they are liable to discharge tax on certain taxable works contract services which was not done by them. However, IO has computed 100% tax liability liability in hands of contractor under forward charge but as per ST Notification no. 30/2012, there was 50% reverse charge on work contract services.

The recipient in our case is government and therefore my question is whether there was any exemption under service tax as per which Govt was not liable to pay RCM on works contract and 100% was payable under forward charge by contractor?

[Amit Agrawal]

A. Query raised is lack of major relevant details like allegations in SCN, reply submitted with proofs there-against & grounds of defence/s taken therein including on time-limitation etc.

B. It is not clear if subject works contract services were exempted from service tax (or, not) under Notification No. 25/2012-Service Tax (as amended from time to time), specific provisions such as Section 101 to 103 & so on.

C. With regards to query raised, one needs to refer to Notification No. 30/2012-Service Tax (as amended from time to time) and one of services which was liable under reverse charge (partially) mechanism was 'taxable services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers to any person who is not in the similar line of business or supply of manpower for any purpose ²[or security services] or service portion in execution of works contractby 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 body corporate, located in the taxable territory'.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

In continuation of my last post:

D. If said Govt. customer of your client (i.e. Government) was not liable to pay service tax under RCM, it means that service provider (i.e. your client) was liable to pay entire service tax liability (i.e. if any) under forward charge basis against services so provided.

Assuming that subject cases result of mis-mismatch between ITR / TDS and service tax returns, one needs to extremely careful - since beginning (i.e. since start of scrutiny / investigation) in making any submissions as well as in deciding best legal strategy to be adopted, in drafting legal defences while replying to SCN in such cases including on limitation period, checking the validity of such SCN (specially if same is without prior investigation / scrutiny etc.).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Sh.Rohit Goel Ji,

You have not mentioned the constitution of the Service Provider. Hence I am not aware of the same.

How the Original Adjudicating Authority is legally correct and proper and justified in holding that 100 % Service Tax is to be paid by the Contractor (Service Provider of Works Contract Service) under FCM ?

Answer : In terms of Notification No.30/12-ST dated 20.6.2012 (as amended from time to time up to 20.1.17) and Section 68 (2) of the Finance Act, 1994, in this scenario there are four situations (out of these one is applicable to your client) which are described below :-

(i) If the Service Provider is individual, HUF, Proprietary firm, Partnership firm, AOP located in taxable territory and Service Recipient is other than business entity registered as body corporate and located in taxable territory, 100 % ST is to be paid by Service Provider under FCM. Here Service Receiver is other than body corporate i.e. Govt.

(ii) If the Service Provider is a Company, Body Corporate, Society and Trust and Service Recipient is 'any person', then 100% ST is to be paid by the Service Provider under FCM.

(iii) If the Service Provider is individual, HUF, Proprietary firm, Partnership firm, AOP located in taxable territory and Service Receiver is a business entity registered as body corporate and located in taxable territory, 50 % ST is to be paid by Service Provider and 50% ST is to be paid by Service Receiver jointly under FCM and RCM respectively.

(iv) If Service Provider is not covered in any of the above category i.e. (i), (ii) & (iii), in that situation also 100 % ST is to be paid by Service Provider under FCM.

[KASTURI SETHI]

In continuation of my views at serial no.3 above , in my opinion , most probably your client is covered under the category (i) above, being not aware of constitution of the firm.

Disclaimer : These are my personal views for education purposes only and not meant for any court proceedings.

AI Summary

Reverse charge on works contract services shifts tax liability based on provider and recipient legal status under notification. The Reverse Charge Mechanism for works contract services is determined by the provider's and recipient's legal status under the notification: government recipients that are not business entities registered as body corporates generally do not attract recipient-side reverse charge, leaving the service provider liable under forward charge; where the recipient is a registered body corporate and the provider is an individual/partnership-type entity the notification contemplates a split or mixed forward/reverse charge; corporate service providers supplying any person are generally liable under forward charge.