TDS Chart for FY 2013-14 (AY 2014-15)

Frequently Asked Questions (FAQs) on Reverse Charge Mechanism (RCM) under New Service Tax law

1)                 What is reverse charge mechanism (RCM) under service tax?

Ans:    In general the liability to pay service tax is on the service provider but central government is empowered u/s 68(2) to notify

(a)   person other than a service provider (e.g. the service receiver) which can be made liable to pay service tax, and

(b)   the extent to which service tax would be payable by such person and the service provider.

So, in simple terms RCM means the mechanism under which “the liability of payment of service tax under prescribed services has been shifted from services provider to prescribed classes of service receiver.”

2)                 Whether service receiver can avail the benefit of SSI exemption while paying service tax under RCM?

Ans:    NO, the recipient of services can not avail the benefit of SSI exemption notification no. 33/2012 dated 20.06.2012 as the same specifically exclude the person liable to pay service tax under RCM as specified under section 68(2). Hence, service receiver is liable to pay service tax under RCM right from first value of transaction.

3)                 Whether service receiver paying service tax under RCM needs to get itself registered under service tax?

Ans:    YES, as per section 69 “every person liable to pay the service tax under this chapter or rules made thereunder shall, within such time and in such manner and in such form as may be prescribed, make an application for registration to the superintendent of central excise.”

4)                 What is meaning of business entity and body corporate?

Ans:    Business entity as per clause 17 of section 65B means “any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession.” Thus, in general charitable organization or government is not business entity.

Body corporate has not been defined in the service tax laws but it can be understood to include entity having separate legal existence so, it includes Company & LLP.

5)                 What is meaning of non-taxable territory and taxable territory?

Ans:    As per Section 65B(35) the word Non-Taxable territory means “the territory which is outside the Taxable Territory.”

As per Section 65B(52) the word Taxable Territory means “the territory to which the provision of this chapter apply.”

As per Section 64(1), this chapter extended to the whole of India except the State of Jammu and Kashmir.

As per Section 65B(27) the word INDIA means –

§  the territory of the Union as referred to in clauses (2) and (3) of article 1 of the Constitution;

§  its territorial waters, continental shelf, exclusive economic zone or any other maritime zone as defined in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976.);

§  the seabed and the subsoil underlying the territorial waters;

§  the air space above its territory and territorial waters; and

§  the installations, structures and vessels located in the continental shelf of India and the exclusive economic zone of India, for the purposes of prospecting or extraction or production of mineral oil and natural gas and supply thereof;

Hence, Taxable Territory includes, whole of India including SEZ, union territories and high sea oil fields, but does not include states of Jammu and Kashmir.

Thus, we can say that Non-Taxable Territory includes Jammu and Kashmir and foreign countries.

6)                 Whether service receiver or provider can avail the abatement to services liable to pay under RCM?

Ans:    YES, service provider and service receiver can avail the benefits of abatements as given in notification no. 26/2012 dated 20.06.2012 subject to conditions prescribed therein regarding non-availability of CENVAT in certain services.

7)                 If the service provider is exempted being SSI (turnover less than Rs. 10 lakhs), how will the RCM work?

Ans:    The liability casted on both service provider and service receiver are statutory liability and are independent of each other. Hence, it might possible that service provider is claiming exemption benefit hence he shall not be obliged to pay service tax but, the service recipient shall have to pay service tax which he is obliged to pay under reverse charge mechanism.

8)                 What is the point of taxation for service recipient under RCM? When will he be required to pay the service tax in respect of his liability?

Ans:    Point of taxation means the point in time when a service shall be deemed to have been provided.

            Rule 7 Point of Taxation Rules, 2011 states that “persons required to pay tax as recipients of service, shall be the date on which payment is made to service provider.

            Provided further that, where the payment is not made within 6 months from the date of invoice, the point of taxation shall be the date of invoice.”

9)                 What is the position with respect to CENVAT in case of service tax paid under RCM?

Ans:    In general, as per Rule 4(7) of CENVAT Credit Rules, 2004 the CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received.

           

            But, there is proviso to Rule 4(7) which states that “in case of an input service where the service tax is paid on reverse charge by the recipient of the service, the CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9.”

           

            The document required to claim CENVAT Credit by the manufacture or provider of output service or input service distributer, as the case may be, as per Rule 9(1)(e) will be “a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax.”

10)             Which are the services covered under RCM?

Ans:    The central government has issued notification no. 30/2012-ST dated 20.06.2012 which is effective from 1.7.2012 and notification no. 45/2012 effective from dated 07.08.2012 under section 68(2) of the Act.

No.	Description of Services	% of service tax payable by SP	% of service tax payable by SR
	w.e.f. 01.07.2012
(A)	Services by an insurance agent to any person carrying on insurance business	Nil	100%
(B)	Services of transportation of goods by road provided by GTA	Nil	100%
(C)	Services of by way of sponsorship	Nil	100%
(D)	Services provided by arbitral tribunal	Nil	100%
(E)	Services provided by an Individual advocate or a firm of advocates by way of legal services	Nil	100%
(F)	Support services provided by Government or local authority	Nil	100%
(G)	(a) Services by way of renting any motor vehicle designed to carry passenger to any person who is not in similar line of business on abated value (b) Services by way of renting any motor vehicle designed to carry passenger to any person who is not in similar line of business on non-abated value	Nil 60%	100% 40%
(H)	Services by way of supply of man power	25%	75%
(I)	Service portion in execution of works contract	50%	50%
(J)	Services provided by any person who is located in a non-taxable territory and received by a person located in taxable territory	Nil	100%
	w.e.f. 07.08.2012
(K)	Services provided by a Director of a company to the said company	Nil	100%
(L)	Services by way of security services	25%	75%

(A)          INSURANCE AGENT SERVICES

11)             Is there any definition of Insurance Agent under service tax?

Ans:    Rule 2(cba) defines Insurance Agent as “has meaning assigned to it section 2(10) of the Insurance Act, 1938.”

Section 2(10) of the Insurance Act, 1938 defines Insurance Agent as “Insurance Agent means an insurance agent licensed under section 42, who receives or agrees to receive payment by way of commission or other remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance.”

12)             Who are responsible for payment of service tax in respect of insurance agent services as a service receiver under RCM?

Ans:    As per notification no. 30/2012, it is person carrying on insurance business is liable to pay service tax under RCM in respect of services received from insurance agent.

13)             What is the summarized position with respect to liability of person to pay service tax in respect of insurance agent services under RCM?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (SR)	Liability to Pay	% of liability
Insurance Agent	Person carrying on insurance business	SR	100%

(B)     GOODS TRANSPORT AGENCY (GTA) SERVICES

14)             What is goods transport agency (GTA)?

Ans:    As per section 65B(26) goods transport agency means “any person who provides service in relation to transport of goods by road and issue consignment note, by whatever name called.”

15)             Who are responsible for payment of service tax in respect of GTA services as service receiver under RCM?

Ans:    The following persons, which are liable to pay freight & located in taxable territory is required to pay service tax under RCM as service receiver;

§  Any factory registered or governed by the Factories Act, 1948

§  Any society registered under the Societies Registration Act, 1860

§  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 thereunder

§  Any body corporate established, by or under any law

§  Any partnership firm whether registered or not under any law including

association of persons

16)             Whether goods transport agency is liable to pay service tax since 100% liability has been shifted to service receiver?

Ans:    YES, there are still some situations, in which goods transport agency (GTA) is liable to pay service tax on goods transported to following person,

§  A person is located in non-taxable territory

§  Individual

§  HUF

§  Proprietary concern neither registered under excise nor factory act

17)             Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of services of goods transport agency?

Ans:    YES, entry no. 21 provides following exemption in respect of services provided by goods transport agency by way of transportation of;

§  Agriculture produce

§  Goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceeds Rs. 1,500.

§  Goods where gross amount charged for the transportation of all such goods for a single consignee in the goods carriage does not does not exceeds Rs. 750.

§  Foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salts and edible oil excluding alcoholic beverages

§  Chemicals fertilizer and oilcakes

§  Newspaper or magazines registered with the registrar of newspapers

§  Relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap

§  Defense or military equipments 

18)             What is the summarized position with respect to liability of person to pay service tax in respect of GTA Services under RCM?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (liable to pay freight) (SR)	Liability to Pay	% of liability
Goods Transport Agency	Individual	SP	100%
	HUF	SP	100%
	Proprietary Firm not registered under excise	SP	100%
	Proprietary Firm registered under excise	SR	100%
	Partnership Firm	SR	100%
	AOP	SR	100%
	Company	SR	100%
	LLP	SR	100%

(C)     SPONSORSHIP SERVICES

19)             Is there any definition of sponsorship service?

Ans:    The word “Sponsorship” in section 65(99a) of Service Tax Act before amendment of Finance Act 2012.

           

As per Section 65(99a), Sponsorship “includes naming an event after the sponsor, displaying the sponsor's company logo or trading name, giving the sponsor exclusive 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 obligation to provide anything in return to such donors.”

20)             Who are responsible for payment of service tax in respect of sponsorship services as service receiver under RCM?

Ans:    The following persons located in taxable territory are liable to pay service tax as service receiver under RCM;

§  Body corporate, Partnership firm & LLP

21)             Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of sponsorship services?

Ans:    YES, entry no. 11 provides following exemption in respect of sponsorship of following sporting events organized;

§  By a national sports federation, or its affiliated federations, where the participating teams or individuals represent any district, state or zone

§  By Association of Indian Universities, Inter-University Sports Board, School Games Federation of India, All India Sports Council for the Deaf, Paralympic Committee of India or Special Olympics Bharat

§  By Central Civil Services Cultural and Sports Board

§  As part of national games, by Indian Olympic Association; or

§  Under Panchayat Yuva Kreeda Aur Khel Abhiyaan (PYKKA) Scheme

22)             What is the summarized position with respect to liability of person to pay service tax in respect of sponsorship services under RCM?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (SR)	Liability to Pay	% of liability
Any person	Partnership Firm	SR	100%
	Company	SR	100%
	LLP	SR	100%
	Any person other than Partnership Firm/Company/LLP	SP	100%

(D)     ARBITRAL TRIBUNAL SERVICES

23)             Is there any definition of arbitral tribunal service?

Ans:    Notification no. 25/2012 (mega exemption notification) defined arbitral tribunal as “the meaning assigned to it in clause (d) of section 2 of the Arbitration and Conciliation Act, 1996.”

24)             Who are responsible for payment of service tax in respect of arbitral tribunal services as a service receiver under RCM?

Ans:    As per notification no. 30/2012, it is only business entity located in taxable territory are required to pay service tax under RCM in respect of arbitral tribunal services.

                       

            For the definition of the word “business entity” see question no. 4 hereinabove.

25)             Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of arbitral tribunal services?

Ans:    YES, entry no. 6(a) provides following exemption in respect of services provided by arbitral tribunal to;

§  Any person other than business entity

§  A business entity with turnover upto Rs. 10 lakhs in preceding financial year.

26)             What is the summarized position with respect to taxability and liability of person to pay service tax for arbitral tribunal services under RCM?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (SR)	Liability to Pay	% of liability
Arbitral Tribunal	Other than business entity	Exempt	-
	Business entity having turnover upto Rs. 10 lakh	Exempt	-
	Business entity having turnover more than Rs. 10 lakh	SR	100%

(E)     LEGAL CONSULTANCY SERVICES PROVIDED BY INDIVIDUAL / PARTNERSHIP FIRM OF ADVOCATE

27)             Is there any definition of legal service and advocate?

Ans:    Notification no. 25/2012 (mega exemption notification) defined legal services as “any services 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.”

           

Whereas, the word advocate defined as “the meaning assigned to it in clause (a) of sub-clause (1) of section 2 of the Advocates Act, 1961.”

28)             Who are responsible for payment of service tax in respect of legal consultancy services as a service receiver under RCM?

Ans:    As per notification no. 30/2012, it is only business entity located in taxable territory are required to pay service tax under RCM in respect of legal consultancy services received from individual or partnership firm of advocate.

           

For the definition of the word “business entity” see question no. 4 hereinabove.

29)             Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of legal consultancy services?

Ans:    YES, entry no. 6(b) provides following exemption in respect of services provided by individual as an advocate or a partnership firm of advocates by way of legal services to;

§  An advocate or partnership firm of advocates providing legal services

§  Any person other than business entity

§  A business entity with turnover upto Rs. 10 lakhs in preceding FY.

30)             What is the summarized position with respect to taxability and liability of person to pay service tax for legal consultancy services?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (SR)	Liability to Pay	% of liability
Individual as an advocate or Partnership firm of advocates	Advocate or partnership firm of advocates	Exempt	-
	Other than business entity	Exempt	-
	Business entity having turnover upto Rs. 10 lakh	Exempt	-
	Business entity having turnover more than Rs. 10 lakh	SR	100%
Legal services under corporate form	Any person	SP	100%

(F)     SUPPORT SERVICES BY GOVERNMENT OR LOCAL AUTHORITY

31)             Is there any definition of support services, government and local authority?

Ans:    Section 65B(49) defines the word support services as “means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis.”

           

            The word government has not defined in the service tax law however Education Guide on taxation of service dated 20.06.2012 defined the word government in point no. 2.4.7 as “includes both Central and any State government”

           

Section 65B(31) defines the word local authority as follows;

§  Panchayat as referred to in clause (d) of article 243 of the Constitution;

§  Municipality as referred to in clause (e) of article 243P of the Constitution;

§  Municipal Committee and a District Board, legally entitled to, or entrusted by the Government with, the control or management of a municipal or local fund;

§  Cantonment Board as defined in section 3 of the Cantonments Act, 2006;

§  Regional council or a district council constituted under the Sixth Schedule to the Constitution;

§  Development board constituted under article 371 of the Constitution; or

§  Regional council constituted under article 371A of the Constitution;

32)             What are exclusion are made in respect of support services from government or local authority?

Ans:    As per notification no. 30/2012, support services provided by government or local authority which are not covered under RCM are as follows;

§  Renting of immovable property

§  Services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government

§  Services in relation to an aircraft or a vessel, inside outside the precincts of a port or an airport

§  Transport of goods or passengers

33)             Who are responsible for payment of service tax in respect of support services from government or local authority as a service receiver under RCM?

Ans:    As per notification no. 30/2012, it is only business entity located in taxable territory are required to pay service tax under RCM in respect of support services receives from government or local authority.

For the definition of the word “business entity” see question no. 4 hereinabove.

(G)     SERVICES BY WAY OF RENTING OF MOTOR VEHICLE DESIGNED TO CARRY ON PASSENGER

34)             Is there any definition of renting of motor vehicle?

Ans:    The word rent has not been defined under service tax laws hence we have understand the same in general term. So, the term rent means act of letting out or allowing the use of something for consideration.

The expression ‘rent a motor vehicle’ in general terms can be understood as motor vehicle rented for day, week or other contracted time, for fixed sum or according to mileage without transfer of possession and effective control.

35)             Who are responsible for payment of service tax in respect of renting out motor vehicle designed to carry on passenger as a service receiver under RCM?

Ans:    As per notification no. 30/2012, it is only business entity registered as body corporate located in taxable territory AND not in similar line of business is required to pay service tax under RCM in respect of renting of motor vehicle services received from individual, HUF, Partnership Firm or Association of Person.

36)             What is the summarized position with respect to taxability and liability of person to pay service tax for renting out motor vehicle designed to carry on passenger?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (not in similar line of business) (SR)	Liability to Pay	% of liability of SP	% of liability of SR
Abated Value
Individual / HUF/ Partnership Firm/ AOP	Company	SR	-	100%
	LLP	SR	-	100%
	Any person other than company and LLP	SP	100%	-
Any person other than Individual/ HUF / Partnership Firm / AOP	Any person	SP	100%	-
Non - Abated Value
Individual / HUF/ Partnership Firm/ AOP	Company	Both SP & SR	60%	40%
	LLP	Both SP & SR	60%	40%
	Any person other than company and LLP	SP	100%	-
Any person other than Individual/ HUF / Partnership Firm / AOP	Any person	SP	100%	-

(H)     SUPPLY OF MANPOWER SERVICES

37)             Is there any definition of supply of manpower services?

Ans:    Rule 2(1)(g) of Service Tax Rules 1994 defined supply of manpower services as “supply of manpower temporarily or otherwise to another person to work under his superintendence or control.”

38)             Who are responsible for payment of service tax in respect of supply of manpower services as a service receiver under RCM?

Ans:    As per notification no. 30/2012, it is only business entity registered as body corporate located in taxable territory are required to pay service tax under RCM in respect of supply of manpower services received from individual, HUF, Partnership Firm or Association of Person.

39)             What is the summarized position with respect to taxability and liability of person to pay service tax for supply of manpower services?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (SR)	Liability to Pay	% of liability of SP	% of liability of SR
Individual / HUF/ Partnership Firm/ AOP	Company	Both SP & SR	25%	75%
	LLP	Both SP & SR	25%	75%
	Any person other than company and LLP	SP	100%	-
Any person other than Individual/ HUF / Partnership Firm / AOP	Any person	SP	100%	-

(I)      WORKS CONTRACT SERVICES

40)             Is there any definition of works contract services?

Ans:    Section 65B(54) defined works contract services as “a contract wherein transfer of property in goods involved in the execution  of  such  contract  is  leviable  to  tax  as  sale  of  goods  and  such  contract  is  for  the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any movable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property”

41)             Who are responsible for payment of service tax in respect of service portion in execution of works contract services as a service receiver under RCM?

Ans:    As per notification no. 30/2012, it is only business entity registered as body corporate located in taxable territory are required to pay service tax under RCM in respect of works contract services received from individual, HUF, Partnership Firm or Association of Person.

42)             What in the manner of determination of value of “service portion” in execution of works contract from total contract value?

Ans:    The manner for determining the value of “service portion” in execution of works contract from the total works contract is given in Rule 2A of the Service Tax (Determination of Value) Rules, 2006.

           

            There are two sub-rules given (i) & (ii) for the purpose of determination of value of “service portion” in execution of works contract for the purpose of charging service tax. For details you may refer the rules.

43)             What is the summarized position with respect to taxability and liability of person to pay service tax in respect of service portion in execution of works contract?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (SR)	Liability to Pay	% of liability of SP	% of liability of SR
Individual / HUF/ Partnership Firm/ AOP	Company	Both SP & SR	50%	50%
	LLP	Both SP & SR	50%	50%
	Any person other than company and LLP	SP	100%	-
Any person other than Individual/ HUF / Partnership Firm / AOP	Any person	SP	100%	-

(J)      SERVICES BY PERSON LOCATED IN NON-TAXABLE TERRITORY

44)             Is there any definition of non-taxable territory?

Ans:    For the definition of the word “non-taxable territory” please refers question no. 5 hereinabove.

45)             Who are responsible for payment of service tax in respect of services received from non-taxable territory as a service receiver under RCM?

Ans:    As per notification no. 30/2012, any person located in taxable territory is required to pay service tax under RCM in respect to any taxable services received from any person who is located in non-taxable territory.

46)             Is there any exemption available under notification no. 25/2012 (mega exemption notification) in respect of services received from non-taxable territory?

Ans:    YES, entry no. 34 provides following exemption in respect of services received from a provider of services located in non-taxable territory;

§  the Government, a local authority, a government authority or an individual in relation to any purpose other than commerce, industry or any other business or profession

§  an entity registered under section 12AA of the Income tax Act, 1961 (43 of 1961) for the purposes of providing charitable activities

§  a person located in a non-taxable territory

(K)     DIRECTOR SERVICES

47)             Is there any definition of director services?

Ans:    The word director has not been defined under service tax law and rules hence we have to understand the meaning with reference to Companies Act, 1956 wherein section 2(13) defines director as “includes any person occupying the position of director by whatever named called.”

48)             Who are responsible for payment of service tax in director services as a service receiver under RCM?

Ans:    As per notification no. 30/2012 amended by notification no. 45/2012, it is only company in which person is director is required to pay service tax under RCM in respect of services received from director.

49)             Is there any exemption available in respect of director services?

Ans:    Clause (b) of section 65B(44) which defines the word Service specifically excludes from its scope “a provision of service by an employee to the employer in course of or in relation to his employment.”

Hence, from the above it can be concluded that service tax is payable on services provided by non-executive, nominee and independent directors to the company, however service tax is not payable in case of managing director or wholetime director or executive director, if the director is in full time employment of the company.

50)             What is the summarized position with respect to taxability and liability of person to pay service tax for directors services?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (SR)	Taxability	Liability to Pay
Managing Director or  Whole-Time or Executive Director, if in full time employment	To company in which they are director	Exempt	No one
Non-Executive Director or Independent Director or Nominee Director	To company in which they are director	Taxable	SR

(L)     SECURITY SERVICES

51)             Is there any definition of security services?

Ans:    Rule 2(1)(fa) of Service Tax Rules 1994 defined security services as “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.”

52)             Who are responsible for payment of service tax in respect of security services as a service receiver under RCM?

Ans:    As per notification no. 30/2012 amended by notification no. 45/2012, it is only business entity registered as body corporate located in taxable territory are required to pay service tax under RCM in respect of security services received from individual, HUF, Partnership Firm or Association of Person.

53)             What is the summarized position with respect to taxability and liability of person to pay service tax for security services?

Ans:    The summarized position is as follows;

Services Provider (SP)	Service Receiver (SR)	Liability to Pay	% of liability of SP	% of liability of SR
Individual / HUF/ Partnership Firm/ AOP	Company	Both SR & SP	25%	75%
	LLP	Both SR & SP	25%	75%
	Any person other than company and LLP	SP	100%	-
Any person other than above Individual/ HUF / Partnership Firm / AOP	Any person	SP	100%	-

  

  

Disclaimer: The above study is based on and concluded as per provisions of service tax laws as amended by Finance Act, 2013 and position of service tax laws, rules, notification and circulars as on 20.04.2013.