payment of service tax on reversed charge method.

[vinay wakde]

Some of our service providers covered under works contracts were not crossed  the turnover limit of  Rs. 10 Lacs in previous financial year 2011-12. Hence, they have not taken any service tax Registration. In the matter kindly clarifiy the following points :-

1. Whether the service recipient has to pay 50% service tax on works contract under reversed charge method after 01.07.2012?
2. The service provider is exempted from payment of Service Tax, as he has not crosses the turnover limit of Rs. 10 Lacs,  Whether the service recipient is eligible to take input service credit  after payment of 50%  service tax on reversed charge method ? 

Regards,

VINAY

[CA Rachit Agarwal]

Service Receiver would be elgible for availing cenvat credit for the amount paid by him. Further he would liable to pay tax even if the service provider is exempted from the payment of service tax.

It is Service Provider who is exempted from the levy of service tax if the turnover does not exceed Rs. 10 lacs. However such exemption is not available to service recipient.

[RAJESH MANGAL AGRAWAL]

I am fully agreed with CA Rachit Agrawal.

CA Rajesh mangal Agrawal

[PRADEEP SHRIVASTAVA]

I disagree the views / contention of both the CAs.  Under Section 66, "there shall be levied a tax (hereinafter referred to as the Sevice Tax) at the rate of 12 percent of the value of taxable service referred to in subclauses...." .   Accordingly, there is no question of leviability of tax in case of Service Provider is  exempted,  and since there is no levy, tax is not  required to be charged  in the bill or invoice of  Service Provider.   Further,  in absence of non-levy and not  being charged in the bill,  the question of payment of service tax under 'reverse charge method' by the  "Receipient of Service" does not arise.

 

Date of submission - 18.07.2012  -   By George Araham, Gen. Manager - Prism Cement Ltd.

[RAJESH MANGAL AGRAWAL]

I am not agreed with the contention of Mr.George Abharam.

The New charging section is governed by Section 66B which is as follows.

There shall be levied atax (hereinafter referred to as service tax) at the rate of twelve per cent on the value of all the services,other than those services specified in the negative list,provided or agreed to be provided in the taxable teritory by one person to another and collected in such manner as may be prescribed.

Kindly further go throgh section 68(2) along with proviso.

 

Further pl. go through the Notification Number Nofn.33/2012-ST. (related to small service provider). The benefit of this notification is not applicable to those person who are paying service tax as per the provision of sec 68(2) i.e. Payment of tax because of Reverse charge mechanism or payment of tax because of Joint charge mechanism. The relevant portion of the captioned Notification is reproduced here.

Notification No. 33/2012 - Service Tax

 New Delhi, the 20th June, 2012

G.S.R. (E).-  In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Finance Act),  and in supersession of the Government of India in the Ministry of Finance (Department of Revenue) notification No. 6/2005-Service Tax, dated the 1^st March, 2005,  published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide G.S.R. number 140(E), dated the 1^st March, 2005, except as respects things done or omitted to be done before such supersession, the Central Government, being satisfied that it is necessary in the public interest so to do,  hereby exempts taxable services of aggregate value not exceeding ten lakh rupees in any financial year from the whole of the service tax leviable thereon under Section 66B of the said Finance Act :        

Provided that nothing contained in this notification shall apply to,-

(i) taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or

(ii) such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under section 68(2) of the said Finance Act read withservice tax rule 1994.

CA RAJESH MANGAL AGRAWAL

[Sumeet Tholle]

Dear Sir,

Kindly refer para 10.1.3 of  "Taxation of Services: An Education Guide" dt. 20.06.2012 issued by CBEC.

As per above para, Service Receiver shall have to pay Service Tax which he obliged to pay under the partial Reverse Charge Mechanism even if Service Receiver's or Service Provider's turnover is below thresh hold exemption.

Regards.

CA Sumeet Tholle

[vasudevan unnikrishnan]

Intersting to see the comments . My views on the same is as follows:-

pl. see that the reverse cahrge as per notification is a method of collection of the service tax in certain cases subject to onditions like the SR should be a 'body corporate' and the SP should not be ,rather other than body corporates.

The liabilty is on the SP ,in all cases and the Notification No. 30/2012-ST has evoved a method of sharing the same by the SR.Hence,the invoicing done by the SP should be showng the total value of taxable service,after abatement,if any, and then the tax payable ,tax share paid by the SP,balance to be shared by the SR.

Then we find any SP ,having taxable value,less abatement,if any,is within 10 lakhs will not be liable to pay tax and thus the share to be paid by the SR will be NIL in such cases.

[PRADEEP SHRIVASTAVA]

Although,  the learned  friends-CAs have rightly quoted by pointing out the provisions and referring to  guidance note, however, a doubt is still in my mind that – constitutionally, “a tax shall  not be collected without the authority of law”.   Which means, ‘there shall be levied a tax……’, and  here,  the levy  is  as per Section 66B (now) and  I have quoted  as Section 66  which  has no differences except  being modified according to the  present regime.   Further, the "collection of  tax" is governed by machinery provision, and the one  which applicable  is  section 68 [Payment of Service Tax] . The sub-section (2) have been referred  by  you  and  some  portions  relevant  on  the subject issue  is highlighted and  reproduced  to  deliberate , as under :-

68(1)   Every person providing  taxable service…..in Section 66B……

(2)    Notwithstanding anything containedin sub-section (1),…………the service tax shall be paid  by such person and in such manner as may be prescribed…….

            Provided that……may notify the service.. and  the extend of service tax…… (payable)     

Vide  notification no 30/2012. dated 20^th June, 2012  the same  has been notified “in exercise of powers conferred by sub-section (2) of section 68 of Finance Act”.  The said notification reads that – “………….., the Central Government hereby notifies the following taxable services and the extend of service tax payable  thereon……”

A collective reading of above provisions and legally  “….the  provider of  service  is  taxable… and,  the  service  tax  is payable….”  (if  there is a levy,….)   in the manner, as may be priscribed …. , provided that -  “the extend of  service tax to be paid by such person…..”.  This has  been reiterated by the learned / respected  friend Shri. Unnikrishnan in his quoting.

Further,   Nofn.33/2012-ST. dated 20^th June, 2012, (as referred )  is issued providing / amending  threshold exemption  excluding  those who are  falling in the category of (i) and (ii).  Here, the proviso (ii)  stipulates that  – “……the  value of taxable services in respect of which service tax shall be paid …..” Now, the question is – having  collective  notification(s),  is it legal and correct  to clarifies in the ‘guidance note’  since  “there is no value of  taxable service”   is there  to collect the  tax…?  Even if assume that  it  is  a taxable service,  however,  the tax is Nil  and not levied  …!

Apart, para - 10.1.3  of  the “Guidance Note No. 10 – Miscellaneous”  has also been referred  by the learned friend/CA.  However,  when the said para’ is collectively read with  para - 10.1.2 , one would observes  as contrary….., and  the guidance note is for guidance only…..!  Pl. enlighten.

By : George Abraham

[vasudevan unnikrishnan]

There appears an inconsistency between paras 10.1.2 and 10.1.3.

Last word in para 10.1.2 should have been 'receiver' and not 'provider' ,which only make sense ;finally to read--

The service tax payable would include service tax payable by the service receiver.

However,in reply to original querry,pl. note that ' any tax paid by SR would be eligible for Cenvat as per para 10.1.4.Hence,it is bound to be revenue neutral at the hands of the SR.

Notification no.33/12, makes it clear that the SR  will not be eligible for 10 lakhs limit.But the exemption is for '

taxable services of aggregate value not exceeding ten lakhs'.

Thus the same value can not be accounted both at the hands of SP and SR .;so when SP is not required to pay tax,the share to be paid by SR  should also be NIL.

The merit in the reasoning given by learned CA RM Agrawal also can not be overlooked ,which would justify para 10.1.3.

A best example of a simple matter is made complicated.;Await further clarification or teat the guide as 'guide' only nd not an authority declaration.

[Harsh Jindal]

Service receiver have to pay the tax liability under Reverse Charge Mechanism by him even if Service Provider is under thresh hold limit. Yes, Service receipient is eligible to take input tax credit as per the rules as amended time to time.

AI Summary

Reverse charge: service recipient must pay tax even if provider is below threshold, with cenvat credit available. When a works contract service is subject to the reverse charge collection mechanism, the recipient must pay the notified portion of service tax even if the provider falls below the small service provider threshold; administrative provisions exclude such transactions from the threshold exemption. The recipient that pays tax under reverse charge is eligible to claim cenvat/input service credit, and invoicing should reflect the taxable value and the allocated tax shares.