GUEST COLUMN

 

Ensuring Compliance in Reverse / Joint Charge - Practical Issues

 

By CA Madhukar N Hiregange

 

 

I.            INCIDENCE OF LEVY

 

v    CONSTITUTIONAL AUTHORITY :

 

Since there was no specific entry made for levy of service Tax by the Union, in the constitution in 1994, the levy and collection is under entry 97 of List I to seventh schedule to the constitution of India, which is a residuary entry.

 

v    EXTENT, COMMENCEMENT AND APPLICATION OF SERVICE TAX:

Section 64 states the following:

a.            It is applicable to whole of India except Jammu & Kashmir.

b.            It would come into effect from the date of notification

c.            It is applicable to taxable service provided on or after commencement.

 

v    Levy of Service tax not attracted to Jammu & Kashmir, Why?

As per Article 370 of the Constitution of India, any Act of Parliament applies to Jammu & Kashmir only with the concurrence of the State Government. Since, no such concurrence has been obtained in respect of Finance Act, 1994; Service tax provisions are not applicable in Jammu & Kashmir.

Services rendered in Jammu & Kashmir would not be liable to Service tax irrespective of the fact whether the service provider is residing in or outside J&K.

The services provided by a person having his business premises in J&K and providing taxable service to the clients in other parts of the country would be liable to Service Tax.

 

 

v    Levy and collection of service tax

Earlier, Service tax was applicable to defined service providers, providing defined taxable services, to defined service receivers, in India. The tax was liable on the gross amounts charged for such service less the deductions and exemptions set out therein. Now, the Service Tax law has undergone a sea change with the term ‘service’ by itself being defined and all the activities which satisfy the definition criterion fall under the service tax net. A list of 17 activities called the negative list is provided which are completely outside the service tax net. Most of the earlier exemption notifications have been scrapped and a mega exemption notification consisting of 39 items is given. Thus one has to check the negative list, then the exemption notification and if any activity is not specified therein, it is a taxable service. The levy now is still on the provision of service, but for crystallization we have to check the Point of Taxation Rules, 2011.

 

Reverse Charge and Joint Charge under Negative List Based Taxation

Introduction:

The new service tax law based on negative based taxation is effective from 1^st of July 2012. Though there are number of aspects and issues under the same, one of the main issues causing concern is the reverse charge and joint charge mechanism. This article discusses the concepts, common issues and possible planning for this mechanism w.e.f. 01.07.2012.

 

What is reverse charge?

Every person providing a taxable service is required to pay a service tax at the prescribed rate. However in certain cases the service recipient is made liable to pay service tax on the services received. Since the person receiving is paying service tax, the mechanism is called as reverse charge.

 

This concept was in place even before the new scheme of negative based taxation was introduced. However in addition to the concept of reverse charge a new concept of joint charge is also introduced.

 

What is Joint Charge Mechanism

Under the concept of joint charge, for the same service both the service provider as well as service receiver is made liable for payment of service tax to the extent notified. This liability is independent of the other person’s liability. In other words the failure to comply with the provisions of one person on his part would not impact the compliance requirement of other person or visa versa.

 

Effective 01^st July 2012 who are all covered under Reverse Charge Mechanism

After the changes in the service tax law, the notification which would be guiding reverse charge as well as joint charge would be Notification No. 30/2012-ST dated 20.06.2012. As per the said notification, the following persons with regards to the corresponding services mentioned would be liable for payment of service tax on reverse charge.

 

 

Effective 01^st July 2012 who all are covered under Joint Charge Mechanism

Similar to the reverse charge the same Notification No. 30/2012-ST dated 20.06.2012 deals with even joint charge as well. As per the said notification, the cases in which the joint charge would be applicable and to what extent is provided below:

 

 

Issue and comments

Issues relating to Insurance Agent Services

1.            Whether gifts in cash and kind, foreign trip to insurance agents whether liable to be included in taxable value by the insurance companies?

Yes.  It is better to include such payments for discharge of service tax to avoid litigation.

 

2.            Is there any exclusion entry related to accidental damages due to unforeseen actions not relatable to the provisions of service?

This inclusion has been inserted vide the Serviced Tax (Determination of Value) Second Amendment Rules, 2012. In terms of this exclusion, accidental damages are not to be included in the value of service provided the following two conditions are specified:

·                     The damages are due to unforeseen actions.

·                     The damages are not related to provisions of service.

 

Issues relating to Services by Goods Transportation Agent

3.            Who are the specified service receivers?

Where person liable to pay freight is one of the following-

·                     any factory registered under or governed by the Factories Act, 1948

·                     any society registered under the Societies Registration Act, 1860 or under any other law for the time being in force in any part of India

·                     any co-operative society established by or under any law;

·                     any dealer of excisable goods, who is registered under the Central Excise Act, 1944 or the rules made there under;

·                     anybody corporate established, by or under any law; or

·                     any partnership firm whether registered or not under any law including association of persons;

 

4.            Whether company is liable to pay service tax under reverse charge mechanism on transportation of goods by individual truck owners?

Reverse charge mechanism would be applicable if and only if amount is paid to an Goods Transport Agency(GTA). Goods transport agency means any person who provides service in relation to transport of goods by road and issues consignment note. It is not applicable for transport of goods by goods transport operators (GTO).

 

5.            What is extent of service tax payable by the company which is receiving services from GTA under reverse charge mechanism?

When services are provided by GTA, the service tax liability to be discharged on 30% of total amount charged to specified persons being persons liable to pay freight provided if the GTA agency did not avail Cenvat credit.

 

6.            “A” Limited, transporter collected service tax from “Rama Limited” and deposited to exchequer. Can exchequer now be demand service tax from the Rama Limited?

No. As the revenue has got its amount, the department cannot demand. However, as the liability is on the “Rama Limited” it is suggested to ask “A limited” to stop charging service tax and discharge service tax by “Rama Limited”

 

7.            “A Limited” is a receiver of service of transportation, has appointed Mr. Ram as an agent to procure services on behalf of it. Who is liable under service tax?

As per definition provided in Service tax rules, the service receiver is liable to service tax himself even though, if he procured services from his agent.

 

8.            Is it necessary to have “Consignment Note” to arise service tax liability or produce of bill is enough to attract service tax liability?

Strictly speaking, to raise liability under service tax, there should be “consignment note” be there. The authorities demanded service tax based on bills also.

 

9.            Is giving declaration necessary to department about any exemption under service tax? Ex:- Transporter engaged in carrying agricultural produce?

No. However it is suggested to file a brief letter covering their services and activities and their branches and can be submitted with the department.

                                                    

10.         “X” a company sells the goods to “Y”. The freight for the movement of the goods has been paid by “X”. “X” collects this freight from “Y” by showing it in the invoice, which is paid by “Y” to “X”. Who is liable for payment of Service Tax?

 The liability under service tax would remain on M/s “X”.

 

11.         What value to be taken for calculation of service tax?

 Many times consignment notes contains, transportation charges, loading & unloading charges, handling charges, cooli charges and any other charges. Considering all the above services are naturally bundled with the main service, the assessee has to include all the above services on the bill to calculate service tax.

 

12.         What is the place of provision of a service of transportation of goods?

 As per Rule 10 of Place of Provision of Services Rules, 2012, place of provision of a service of transportation of goods is the place of destination of goods, except in the case of services provided by a GTA in respect of transportation of goods by road, in which case the place of provision is the location of the person liable to pay tax. If the person liable to pay service is GTA itself then the place provision of service is the place of GTA.

 

13.         What are the conditions for availment of 70% abatement? Is that conditions applicable to service recipient?

The condition for availing abatement in case of GTA service is being amended with effect from 11.07.2014to clarify that the condition for non-availment of credit is required to be satisfied by the service providers only.

 

Issues relating to sponsorship services

14.         Whether sponsorship provided to an individual is liable in hands of service recipient under reverse charge mechanism?

As the specified service receivers under reverse charge mechanism for sponsorship services is firm/body corporate. There is no service tax liability on such a service receiver (individual) under reverse charge.

 

15.         How to identify a transaction as sponsorship or act of a philanthropist?

A person sponsoring an event without getting or expecting any kind of benefit or return is not a sponsor but only a philanthropist.

 

16.         What is the difference between sponsorship service and event management service?

Organization of annual day function or celebrations is not a sponsorship service but an event management service. Sponsoring service is not linked with sales promotional activity. It is event management service vide the case law Hindustan Coco – cola Beverages Private Limited Vs CCE, Meerut – II – 2010 (251) E.L.T 125 (Tri – Del). For a sales promotion activity, designing, fabricating and running of a stall are necessary. The earthwork for the stall is done by manpower supply service. Designing and fabricating of a stall, selling from the stall and data collection, printing and invitation ob banners and providing branded T-shirts and caps to the persons running the stall – these are all covered under event management service.

 

17.         What are the constituents of Sponsorship service?

Sponsorship service came to tax net on 1.5.2006. Section 65(99a) of Finance Act, 1994, introduced on 1.5.2006, includes naming an event after the sponsor displaying the sponsor`s company logo or trading name, giving the sponsor exclusive right or priority booking rights, sponsoring prizes or trophies for competition; but does not include any financial or other support in the form of donations or gifts, given by the donors subject to the condition that the service provider is under no objection to provide anything in return to such donors.  

 

Issues relating to Arbitral Tribunal service

18.         Who is liable for service tax under reverse charge mechanism?

Here liability exists on business entity. So, business entity would include corporations, sole traders, limited liability partnership firms, partnership firms, cooperatives and companies.

“Business entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession.

 

19.         I am serving as a member of an arbitral tribunal comprising many arbitrators and receiving an amount from the arbitral tribunal. Am I providing a service and required to pay service tax on such amount received?

Arbitral tribunal comprising more than one arbitrator would constitute an entity by itself. Thus services of individual arbitrator when represented on such an arbitral tribunal would also constitute service by one person to another. However such service is exempt under sr. no. 6(c) of the mega notification.

 

Issues relating to Legal services

20.         Is there any exemption for payment of service tax under Reverse charge Mechanism?

Yes.  A business entity with a turnover up to rupees ten lakhs in preceding financial year, need not make payment of service tax under reverse charge mechanism for legal services for legal services received during the current financial year.

 

21.         What is business entity?

"Business entity" means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession

 

22.         Whether service tax is leviable on reverse charge mechanism when the legal services is provided by a firm of advocates to a charitable trust engaged in running old age homes?

As the specified service receivers namely business entities is liable as a receiver of legal services under reverse charge mechanism. The "business entity" means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession; As the charitable trust is not a business entity as in normal course it is not carrying on any activity related to trade, industry or business with a profit making motive. It is not liable to service tax on legal service under reverse charge mechanism.

 

23.         Whether services other than legal services which is provided by a advocate to business entity liable to service tax?

The service tax liability arises to service recipient business entity under reverse charge mechanism only in respect of legal services. Legal services is defined as follows in notification no.25/2012-ST- 2(w)"legal service" means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority; In other words, if any other services such as coaching classes is done by advocate to LLB students or Renting if immovable property service is not liable in hands of recipient under reverse charge mechanism.

 

24.         Whether a service provided by an individual advocate to an individual is liable under reverse charge?

No. As per the notification 30/2012-ST, legal services are to be provided by individual advocate or a firm of advocates, and the service receiver shall be a business entity. Business entity included AOP, BOI, company or firm. Thus, legal service provided to an individual is not liable to service tax under reverse charge.

 

Issues under Director Services

25.         Whether services by whole time director to company is liable in hands of company?

The services by director who are Whole time employees of companies are not liable in hands of company. As the payments which is done by employer to employee in course of employment is excluded from service tax levy. Copies of board resolution and TDS certificates would be relevant documents to produce in case of audits by department.

 

26.         From which date the service tax liability arises to company under reverse charge mechanism in respect of sitting fees which was paid to the directors?

The service tax liability arises to the company only for services are received from directors of the company, w.e.f 7.8.2012 onwards.

 

27.         Whether the service tax needs to be deposited by company on the architect services provided to company by the director who is a qualified as a B Arch?

In view of the authors, the service tax liability arises to company under reverse charge only in respect of services received from directors in their capacity as directors, though this is not clarified explicitly in the law. There is a possibility the revenue could take a view company has to pay service tax on such payments also under reverse charge mechanism.

 

28.         Whether the Commission for the year 2011-12 paid to the Directors on 01.09.2012 is liable to Service tax, considering the fact that the service in this regard was provided by the Directors prior to 01/07/2012, when the 1st Notification i.e., Notification no. 30/2012-ST came into effect?

As the services for which the commission is paid on 1.08.2012 to the directors is not taxable based on the well settled principle that when there is no levy at the time of taxable event occurrence, there cannot be any tax liability later.

 

29.         What types of charges are liable to service tax under reverse charge for services provided by a director to the company?

The gross amount payable by the company to the directors is includable for payment of service tax. It may be in the form of the following:

a)            Sitting fees

b)            Commission

c)            Bonus

d)            Share in profit

e)            Benefit in the form of ESOPs.

 

30.         Whether reverse charge is applicable in case of services provided by foreign directors to the company?

Yes. Similar to Indian directors, services of foreign directors are also liable to service tax under reverse charge mechanism.

 

Issues relating to services provided by Government or Local Authority

31.         Whether services provided by Police agencies to companies taxable in hands of service receiver under reverse charge mechanism?

Yes. Security services provided by government agencies are liable. The tax is payable by the recipient payable on reverse charge mechanism.

 

32.         Whether grant of mining rights by State Government to companies is liable under reverse charge mechanism?

The services which are provided by government in terms of their sovereign right to business entities, and which are not substitutable in any manner by any private entity, are not support services. As the private entities cannot grant mining rights, it cannot be covered as support service to business entities. Therefore service tax liability does not arise to service receiver business entity under reverse charge mechanism.

 

In Finance Act 2015 “any service” has substituted “support service”. However the applicability has been differed. From the date of notification this could also be liable.

 

Issues relating to rent-a-cab services:

33.         Whether service tax liability arises to recipient business entity body corporate under reverse charge on the motor vehicle which is run on kilometre basis?

The vehicle which is run on a kilometer basis is not liable under the reverse charge mechanism in hands of recipient of service if it satisfies the definition of meter cab. Further such meter cabs is covered in negative list. Therefore it is not liable to service tax at all.

 

34.         Whether the individual providing renting of motor vehicle to company has to be under abatement option, to enable the service receiver to pay service tax on 40% of total amount charged?

The liability of service receiver Company is restricted to 40% of total service tax payable on amount charged, whether specified service provider is opted for abatement option.  The service receiver company can go ahead and pay service tax of 40% of total service tax payable when the provider opted for abatement.

 

35.         Whether Cenvat credits can be availed on the service tax paid by service receiver on renting of vehicle for pick and drop of Employees Company under reverse charge mechanism?

It is better not to avail such credits due to specific restriction on availing employee related credits which is mainly intended for personal use or consumption of employees in definition of input services under CCR, 2004.

 

36.         A Rent-a-cab service provider provides service to another business entity engaged in providing rent-a-cab service. Will reverse or joint charge be applicable in such case?

No. if rent-a-cab service is provided to a person engaged in the same line of business, such contracts do not fall under reverse or joint charge. Service tax has to be paid by the service provider fully.

 

37.         Where a rent-a-cab service provider does not avail abatement under notification no. 26/2012-ST, what would be the implications under reverse/joint charge?

If a service provider provides rent-a-cab service under non-abated value, joint charge becomes applicable. Here, both the service provider and service receiver shall pay service tax equally i.e., 50% each. (50% vide notification no. 10/2014-ST)

 

Issues relating to manpower supply & security services:

38.         Whether cleaning services provided by a firm to a company by sending its staff to company premises is a manpower supply services?

The responsibility for deliverables whether with service provider or receiver has to be examined. If merely persons are being supplied to company by the firm, who are working as per directions of company and firm is not responsible for executing of cleaning services. Then it is manpower supply services and entire liability arises on the company w.e.f 01.04.2015. When the contract is for executing cleaning services by firm, and firm is responsible to execute the cleaning works. Then it is a cleaning contract and not a manpower supply contract. Company is not liable under reverse charge mechanism.

 

39.         Whether service tax liability arises on manufacturer`s company When manpower supplied on piece/job work basis by the contractors?
 Services such as cleaning Service, piece basis/job basis contracts etc. are not manpower supply Services.

 

40.         ABC limited (service receiver) pays bonus amount to the service provider i.e. (contractor). Whether ABC limited is liable for service tax under RCM?

Section 67(3) of Finance Act, 1994, the payment received either before, during or after the provision of taxable service, are treated as amount received for taxable service and service tax is required to be paid on such amount.

 

41.         Whether Service tax on manpower supply service is to be computed on the gross amount claimed by the service provider or only on the service charges claimed by the service provider?

 The consideration consists of both the employees labour cost and the service charges of the agency for supplying the manpower.

 

42.         In case of finishing services, if skilled/qualified labour is supplied by the manpower supply agency, would it be liable to service tax under reverse charge? Or would it be regarded as Business Support Service?

The agreements that the service receiver and the provider enter into, are essentially for the supply of manpower. Such personnel work for the service receiver, under the receiver’s supervision, yet, they continue to be the service provider’s employees. Employer-employee relationship exists between the personnel and the manpower agency, and not between personnel and the receiver. Thus, the service receiver is liable to pay service tax under reverse charge. As discussed above, such contracts cannot be regarded as Business Support Service either.

 

43.         Whether artisans hired by an organization directly, on contract basis, without any intermediary, is liable to pay service tax under reverse charge mechanism?

No. Where there is absence of an intermediary, or there is no consideration paid or payable to such intermediary, such cases don’t fall under the category of “Manpower Supply”, and thus, not liable to pay service tax under reverse charge.

 

44.         Whether manpower supply service provided by a body corporate to another body corporate is liable to pay service tax under reverse charge mechanism?

It is mentioned in the notification no. 30/2012-ST, that the service shall be provided by individual, HUF, proprietary firm, partnership firm or AOP, and the service receiver shall be a body corporate. Therefore, in the given case, reverse charge is not applicable and the service provider need to charge 100% service tax from the recipient.

 

45.         Whether the security services provided by one company to another company are liable in hands of such other company?

No, when both service providers and service receivers are companies the service tax liability does not arise to recipient company under reverse charge mechanism.

 

46.         Generally what kind of security services would be covered?

Security Services are those Services relating to the security of any property, whether movable or immovable, or of any person, in any manner and includes the services of investigation, detection or verification, of any fact or activity.

 

Issues relating to works contract services

47.         What is service tax liability of the service recipient company under joint charge in case of works contract executed by sole proprietary concern?

In case of the service provider being an individual , HUF or partnership firm which is executing works contract and the recipient is a body corporate, then the service recipient company is made liable to discharge 50% of the tax liability vide notification 30/2012-ST. The service tax only to the extent of 50% of service tax payable has to be paid by the service provider and balance 50% has to be paid by the service recipient.

 

48.         Whether pure labour jobs of brick laying/pit digging done by individual contractor is liable in the hands of Construction Company?

The service tax liability does not arise on pure labour jobs done in relation to construction by individual/firm to a company. The service tax liability would arise only when a comprehensive material plus labour job is being executed by the contractor individual to the company.

 

49.         Whether service tax liability arises to the service recipient company when the sale of genset is followed by services of erection by the individual contractor?

The service tax liability arises to the service recipient company only in respect of the comprehensive material plus labour works which involves a transfer of property in goods in the course of execution of such works. Prima facie there is no transfer of materials taking place while installing the genset. As genset is already sold separately and belongs to company. In this case it is sale of material, followed by a pure services being provided. It may not be a works contract. Therefore, there is no liability under reverse charge mechanism on company. The terms of contract could be critical to determine if it is works contract or not.

 

50.         Whether the service receiver company has to follow same method as the service provider contractor individual to discharge service tax liability under joint charge?

 An option is given in works contract services, whereby the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service. In other words, the service provider contractor discharges service tax on 25% of gross amount (i.e. including land) charged. The client being a body corporate could opt to pay on 40% of total works contract value for original works of construction of new building contract following valuation option for valuing service portion of works contract on presumptive basis as per Valuation rules.

 

51.         How to determine liability on material plus labour AMC of repair of AC when the firm providing such services is raising bill for gross amount without material and labour break up?

 When the service portion is not specifically indicated in the invoices raised by the repairs contractor, the service tax liability at 50% *12.36% can be paid on 70% of total amount charged by the service receiver company. This is as per valuation mechanism for valuing service portion of works contract set out in Valuation rules which is prescribed in this regard.

 

52.         In case of works contract being provided, is it possible that the value of contract determined by the service provider and the receiver, may differ?

As per the explanation given in notification no. 30/2012-ST, the valuation methodologies chosen by the receiver and provider can be independent of each other.

 

53.         Would labour contracts in relation to a building or structure be treated as a works contract?

No. Labour Contracts do not fall in the definition of works contract. It is necessary that there should be transfer of property in goods involved in the execution of such contract which is leviable to tax as sale of goods. Pure labour contracts are therefore not works contracts and would be leviable to service tax like any other service and on full value.

 

54.         Would contracts for repair or maintenance of motor vehicles be treated as ‘works contracts’? If so, how would the value be determined for ascertaining the value portion of service involved in execution of such a works contract?

Yes. Contracts for repair or maintenance of moveable properties are also works contracts if property in goods is transferred in the course of execution of such a contract. Service tax has to be paid for the service portion of such a contract.

 

55.         Would contracts for construction of a pipe line or conduit be covered under works contract?

Yes. As pipeline or conduits are structures on land contracts for construction of such structure would be covered under works contract. However exemption is to be examined.

 

56.         Would contracts for erection commissioning or installation of plant, machinery, equipment or structures, whether prefabricated or otherwise, be treated as a works contract?

Such contracts would be treated as works contracts if transfer of property in goods is involved in such a contract.

 

57.         Whether service tax liability arises to service recipient company under reverse charge when sole proprietary concern providing security services deploys its persons at company office to provide security services to client?

Yes, this would be liable to service tax of 100% of service tax liability as the services are not provided by the security guards to the recipient company in course of employment with company.

 

58.         Would contracts for painting of a building, repair of a building, renovation of a building, wall tiling, flooring be covered under ‘works contract’?

Yes, if such contracts involve provision of materials as well.

 

59.         Is the definition of ‘works contract’ in clause (54) of section 65B in line with the definition of ‘works contract’ in various State VAT laws?

The definition of ‘works contract’ in clause (54) of section 65B covers such contracts which involve transfer of property in goods and are for carrying out the activities specified in the said clause (54) in respect of both moveable and immoveable properties. This is broadly in consonance with the definition of ‘works contract’ in most of the State VAT laws. However, each State has defined ‘works contracts’ differently while dealing with works contract as a category of deemed sales. There could, therefore, be variations from State to State. For service tax purposes the definition in clause (54) of section 65B would alone be applicable.

 

Common Issues:

60.         We are amending the ST registration to include the services where we are liable as a service recipient, but, the form only indicates services as a provider.  Should we include the services as a receiver under the service provider column?

The services have to be included under service provider column itself.

 

61.         Whether Indian company is liable to discharge service tax under reverse charge on advertising services received from Jammu & Kashmir ad-agency?

The service tax law is applicable to whole of India other than Jammu and Kashmir. Yes, as it is services received by Indian company from J&K, liability arises to receiver under reverse charge mechanism.

 

62.         The company is paying legal fees to Individual advocates / Firm of  advocates.  Whether company is required to pay service tax under reverse charge?

Yes, if company had a turnover exceeding Rs 10 Lakhs during preceding year needed to pay service tax liability on legal services.

 

63.         Whether company is liable to pay service tax under reverse charge on the rentals paid on premises rented out to company by director?

The service tax is payable on the services provided by a director of a company to the said company. There is no clarity presently whether service tax liability arises under reverse charge on the services provided by the director in his personal capacity to company.

 

64.         Whether company is liable under joint charge mechanism for consultancy services by individual tax consultants? 

The service tax liability under joint charge does not arise to company in respect of pure consultancy services.

 

65.         The company supplies fire and security equipment and installs the same.  The installation is done on subcontract basis by individual contractors. Is company liable under joint charge mechanism?

The service tax is payable under joint charge mechanism on comprehensive material and labour contracts of nature of works contract executed by sub-contractor to company. As the sub-contractors are executing pure labour jobs, company is not liable under joint charge mechanism.

 

66.         Whether the company liable under joint charge when it is supplying steel and cement, other construction materials and individual contractor merely provides construction services?

If contracts are presently being given as material plus labour, a possible way could be for company to bring in materials and contractor to merely execute labour jobs. As it is merely construction services done by contractor. In such case there is no joint charge mechanism applicable to company.

 

67.         The company receives manpower supply services from firm having a turnover of less than Rs 10 Lakhs? Whether company is exempted from joint charge as firm is small service provider?

The service recipient is liable to pay service tax irrespective of the fact whether the service provider was exempted or not by virtue of small service provider exemption under Notification No. 33/2012-ST dated 20.06.2012. In other words even if the total value of service provider services is less than 10 lakhs the service recipient wherever liable to pay service tax has to pay tax.

 

68.         Whether company needs to pay service tax if the works contract executed by individual contractor is for construction of public road to be used by public?

No, then service recipient need not pay service tax.

 

69.         The company has not deposited the service tax under the reverse and joint charge mechanism till date.  Should it calculate the monthly liability and pay it with the interest @18% for the actual days of delay?

 The service tax liability under joint charge and reverse charge to be paid with interest as per notification 12/2014 ST dated 11.07.2014.

 

70.         Whether service recipient company can avail Cenvat credits of the service tax paid under joint charge and reverse charge mechanism?

The service recipient is eligible to claim CENVAT Credit of service tax paid by both the service provider if any and also recipient by himself, subject to eligibility of such credits under Cenvat Credit Rules.

 

71.         Which are the services for which the joint charge mechanism is applicable?

The mechanism is applicable to services provided or agreed to be provided by way of

a)            Renting of a motor vehicle designed to carry passengers on a non-abated value to any person who is not engaged in similar line of business.

b)            Service portion in execution of works contract.

 

72.         What is status of service provider and service recipient when services are covered in joint charge mechanism?

Service provider located in taxable territory should fall under any one of the following categories-

a.            Individual.

b.            HUF.

c.            Partnership firm, whether registered or not.

d.            Association of persons. And service recipient should be a business entity body corporate located in taxable territory.

Thus nature of service and the status of both service provider and service receiver are important to determine applicability of joint charge mechanism.

 

73.         Whether the service receiver body corporate business entity having a service tax registration needs to take a fresh registration for paying service tax under joint charge mechanism?

No. The company can pay service tax in its existing registration. Not needed to take a fresh registration under service tax as a recipient of service under joint charge mechanism.

 

74.         What does a service provider need to indicate on invoice when he is liable to pay only a part of liability under joint charge mechanism?

The service provider has to issue an invoice complying with Rule 4A of Service Tax Rules, 1994. Thus the invoice shall indicate name, address and registration number of service provider, name and address of person receiving taxable service, the description and value of taxable service provided or agreed to be provided and the service tax payable thereon. The invoice could indicate as a precaution by way of a note in invoice that service recipient is also under an obligation to deposit the specified percentage of service tax payable by him directly to Government.

 

75.         Whether joint charge is applicable on services provided and completed before 1.7.2012 though payments made after 1.7.2012?

For any services whose point of taxation was determined and whole liability affixed before 1.7.2012 the new provisions would not apply. Merely due to reason that the payments are made after 1.7.2012 would not add any additional liability on service receiver in respect of such services.

 

76.         Whether service tax liability can be paid by recipient under joint charge mechanism by utilizing Cenvat credits?

No, payment has to be done in cash/cheque/e-payment. There is a specific restriction that CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient.

 

77.         Whether liability of service provider and service recipient are independent of each other?

Yes, the service tax liability is independent and different from each other.  The service tax liability of the service provider and the service recipient is to the specified extent alone.

 

78.         Whether the service tax liability can be deducted from amounts payable to the service provider individual/ firm by the service recipient company?

The service receiver company cannot deduct the amount of service tax payable by it under joint charge mechanism out of the amounts which is payable , for instance Rs. 10,000[billed] by the rent a cab operator service provider unless the terms of the contract are explicit in that regard. The payment of service tax liability under joint charge mechanism is not a TDS which is to be deducted and paid by the service receiver. It is a liability which is independent of the service provider liability.

 

79.         Whether service tax liability arises to service recipient body corporate under joint charge in respect of housekeeping service, done by individual contractor?

Yes, liability of 100% of total service tax payable under manpower supply service only if the laborers are working under superintendence or control of the service recipient body corporate.

 

80.         Whether the service receiver manufacturer-company which has paid the service tax liability for freight outwards for transporting duty paid manufactured goods to customers place can avail such credits to set off against excise duty paid on manufactured excisable goods?

No, as there is a specific restriction in input services definition in Cenvat credit rules to avail Cenvat credits on freight on outwards transport  from place of removal  w.e.f 1/4/2008. However credit upto 2008 are eligible.

 

81.         How to compute value of services received by service recipient in case of works contract of original works, where actual value of transfer of property in goods is not determined?

The service recipient has to discharge service tax liability based on payments made to service provider.  The costs of free issue materials supplied by service recipient to service provider is required to be included in value of relevant services, if presumptive method of paying service tax on 40% of total amount charged is followed under Rule 2A of Valuation Rules.

 

82.         Whether a body corporate business entity engaged solely in manufacture of exempted goods such as manufacture of breads needs to take a service tax registration to pay service tax on rent a cab service where amount paid less than Rs 1 Lakhs pa?

Yes, as there is no monetary limit for specified services received as a renting of motor vehicles designed to carry passengers. They have to register and pay.

 

83.         Would credit of service tax paid on services of construction of building by individual contractor be available to a service recipient company engaged in manufacture of excisable goods?

No, as input services credits in relation to setting up of a factory would not be available to manufacturer of final products after amendment in input services definition wef 1.4.2011.

 

84.         Whether refund of Cenvat credits to a service provider providing services taxed on joint reverse charge basis is available?

A provider of service providing services notified under sub-section (2) of section 68 of the Finance Act and being unable to utilize the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilized CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette. This may be available only to persons who are discharging liability under joint charge mechanism.

 

Conclusion:

In most respects, the new scheme of taxation under reverse charge and joint charge mechanism is to enable the wider coverage of especially unorganized sector and bring them into service tax net. However practically there are a lot of challenges which the businessmen are facing even today to align the existing practice to the new scheme considering variation in the business model and heterogeneous type of services. There are bound to be thousands of dispute, errors and real non compliance in this area.

 

-Information adopted by CA Prakash N from

Booklet of RC/JC written by Mr. Venkat Narayana

 

Please share your views and feedback at: madhukar@hiregange.com and support@vatinfoline.com

 

Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose and it doesn’t constitute professional advice or recommendation.