Reverse Charge & Joint Charge Mechanism · Cenvat Credit Issues Tax Shift V. Exemption 2 . Background to GTA Service Generally – Person providing taxable service. – S.68(1) Exception

Reverse Charge & Joint Charge Mechanism

By:

A.Saiprasad

B.Com, LLB, ACA, DISA, AMIMA

Advocate

Session Outline

Who is liable to pay Service Tax

Can Service Recipient be made liable to pay service tax

Historical Background.

Notification No.30/12 ST dt.20.6.12

Point of Taxation & Place of Provision of Service

Cenvat Credit Issues

Tax Shift V. Exemption

2

Background to GTA Service

Generally – Person providing taxable service. – S.68(1)

Exception – Tax on Such services, as notified by CG, shall be paid by such persons and in such manner as may be prescribed – s. 68(2)

Rule 2(1)(d) of STR, 94 r/w Notification No.30/12 ST

From 1.7.12 – Both service provider and service recipient made liable to pay ST for W/c, MPS, Security Service and Rent of motor vehicle service

3

Laghu Udyog Bharti Case, 1999 (112) ELT 365 (SC)

Customers of:

Clearing & Forwarding Agents

Goods Transport Operators

Made liable to pay ST

Charge of ST was on the person liable to collect ST (service provider)

Rule 2(d) of STR, 94 made service receiver as person liable to pay ST r/w S.68(1A)

4


Charge on value of service, provided by person responsible for collecting service tax

Imposition is on person rendering the service

Assessee defined as person responsible for collecting service tax

“person responsible for collecting the service tax” means a person who is required to collect service tax or is required to pay any other sum of money under this Chapter

Rules require the service receiver to pay service tax

Rule 2(d)(xii)(xvii)

5


SC held:

We have no hesitation in holding that the provisions of Rule 2(d)(xii) and (xvii), insofar as it makes persons other than the clearing and forwarding agents or the persons other than the goods transport operator as being responsible for collecting the service tax, are ultra vires the Act itself. The said sub-rules are accordingly quashed.

6

Amendments to the Law

A’ee definition amended to include customers of truck operators and C & F agent

S.66 – Charging section amended – stating collection of ST shall be in such manner as may be prescribed.

Prescription – S.68(1) proviso r/w rule 2(d) prescribed service recipient as person liable to pay tax

7

Gujarat Ambuja Cements Ltd Case, 2006 (3) STR 608 (SC)

SC held:

The point at which the collection of the tax is to be made is a question of legislative convenience and part of the machinery for realization and recovery of the tax. The manner of the collection has been described as “an accident of administration; it is not of the essence of the duty”.

8

Gujarat Ambuja Cements Ltd Case, 2006 (3) STR 608 (SC)

SC held:

S.66 is the charging section provides for tax on rendering service.

S.68 is machinery provision which has cast duty on service recipient

R.2(d) not in conflict with charging section

Service Tax may be collected from service recipient.

9

History


Service Recipient made person liable to pay service tax

7 services

Notification No.15/12 ST rescinded Notification No.36/04.

Present Notification No.30/12 ST rescinded Notification No.15/12.

Amended by Notification No.45/12 ST dt.7.8.12

10

Person Liable to pay ST

Section 68(2) – Service Tax paid by Such persons and in Such Manner

Extent of ST payable by such person – from 1.7.12

Rule 2(1)(d), provides the list of services where service receiver is made liable to pay ST

In respect of service notified U/s 68(2)

Amendment to Rule 2(1)(d) makes both service provider and service receiver liable to ST from 1.7.12.

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Person Liable to Pay Service Tax

Sl. No. Description of a service

Service Provider

Service Receiver

1. Services provided by an insurance agent to any person carrying on insurance business

Insurance Agent

Nil

Person Carrying

on Insurance Business

100%

12



Service Provider

Service Receiver

2. Services provided by a GTA

GTA

Nil

Persons mentioned

u/r 2(1)(d)(B)

100%

13



Service Provider

Service Receiver

3. Services provided by way of sponsorship

Any Person

Nil

Body Corporate/ Partnership

Firm

100%

14



Service Provider

Service Receiver

4. Services provided by an arbitral tribunal

Arbitral Tribunal

Nil

Business Entity

100%

15



Service Provider

Service Receiver

5. Services provided by individual advocate or a firm of advocates by way of legal services

Indl. Adv Firm of Adv.

Nil

Business Entity

100%

16



Service Provider

Service Receiver

5A Services provided by a director of a company to the said company

Director

Nil

Said Company

100%

17


Sl. No. Description of a service Service Provider

Service Receiver

6. Services provided by Government or local authority by way of support services excluding,- (1)renting of immovable

property, and (2)services specified in sub-

clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act, 1994

Gvt, Local Authority

Nil

Business Entity

100%

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Sl. No.

Description of a service Service Provider

Service Receiver

7. (a) Renting of MV, designed to carry passengers on abated value to any person who is not engaged in the similar line of business

Refer Note

Nil

Refer Note

100%

(b) Renting of MV, designed to carry passengers on non abated value to any person who is not engaged in the similar line of business

Refer Note

60%

Refer Note

40%

19



Service Provider

Service Receiver

8. Manpower Supply & Security Service

Refer Note

25%

Refer Note

75 %

20



Service Provider

Service Receiver

9. Service portion in execution of works contract

Refer Note

50%

Refer Note

50%

21



Service Provider

Service Receiver

10. Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory

Located outside Taxable Territory

Nil

Located inside

Taxable Territory

100%

22

GTA Service

“goods transport agency” means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called.

S.65B(26)

Any goods transport agency which provides service in relation to transport of goods by road in a goods carriage shall issue a consignment note [to the recipient of Service]

R.4B of STR, 94

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GTA Service

“consignment note” means a document,

issued by a goods transport agency

against the receipt of goods

for the purpose of transport of goods

by road in a goods carriage,

which is serially numbered, and contains the names of

the consignor and consignee,

registration number of the goods carriage

details of the goods transported,

details of the place of origin and destination,

person liable for paying service tax whether consignor, consignee or the goods transport agency.]

24

GTA Service

Transportation by Auto, bullock cart, cycle ?

Not a declared service

58 services have been brought under the net so far. I propose to add some more this year. These are ….services provided by transport booking agents;…. I may clarify that there is no intention to levy service tax on truck owners or truck operators.

Para 149 of FM Speech, 8th July, 04

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Truck Owners & Truck Operators

Self Employed driver of goods carriage

Truck owner or Truck operator of Goods Carriage

CCE V. Kanaka Durga Agro Oil Products Pvt Ltd

2009 (15) STR 399 (T)

Lakshminarayana Mining Co V. CST

2009 (16) STR 691 (T)

Affirmed by Kar HC in 2012 (26) STR 517 (Kar.)

KMB Granites Pvt Ltd V. CCE

2010 (19) STR 437 (T)

26

GTA Service

The recipient shall be liable to pay ST if and only if he is covered under one of the following entries:

(I) Factory registered under Factories Act, 1948

(II) Society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;

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GTA Service

(III) Co-operative society established by or under any law;

(IV) Dealer of excisable goods, who is registered under the Central Excise Act, 1944

(V) Body corporate established, by or under any law;

(VI) Partnership firm whether registered or not under any law including association of persons;

28

GTA Service

Further, the service receiver would be either the consignor or consignee, depending on the person who has actually paid the freight.

What if both consignor and consignee are individuals, who do not fall under any of the six categories?

Who would be liable to pay ST ?

29

GTA Service

What if the service receiver (falling within the 6 categories), who has paid freight, is located in non taxable territory.

Service provider would be liable to pay ST. – Proviso to Rule 2(d)(B)

30

Exemptions relating to GTA

(a) agricultural produce;

(b) goods, where gross amount charged for the transportation of goods on a consignment transported in a single carriage does not exceed one thousand five hundred rupees;

Single Goods Carriage

(c) goods, where gross amount charged for transportation of all such goods for a single consignee does not exceed rupees seven hundred fifty;

Single Consignee

Entry No.21 of Notification No.25/12 as amended

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(d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

(e) chemical fertilizer and oilcakes;

(f) newspaper or magazines registered with the Registrar of Newspapers;

(g) relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or

(h) defence or military equipments


32


Services by way of giving on hire -

(a) to a state transport undertaking, a motor vehicle meant to carry more than twelve passengers; or

(b) to a goods transport agency, a means of transportation of goods


Entry No. 7 to Notification No.26/12 ST

75% Abatement

Cr on I/P, I/Ps, C.G. must not be availed by GTA

Certificate

33

GTA & Threshold Exemption


For Service Provider – Para 3

Payment received by such GTA

From person liable for paying service tax

As per 68(2) r/w Rule 2(1)(d)(B)

Shall not be taken into account

For Service Receiver – Proviso to Para 1

Nothing contained in this Ntfn shall apply to

Person liable to pay ST as per 68(2)

34

GTA & Cenvat Credit

Whether GTA is output service *2(p) “output service” means any service provided by a provider of service located in the taxable territory but shall not include a service, - (1) specified in section 66D of the Finance Act; or (2) where the whole of service tax is liable to be paid by the recipient of service.]

Whether GTA (service provider) can take cenvat credit?

Whether person liable to pay ST (service receiver) can take cenvat credit to pay GTA?

To be read with Rule 4(7) of CCR, 04

35

GTA & Cenvat Credit

[(7) 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 :

Provided 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 :

36

GTA & Cenvat Credit

Whether GTA (ST paid on freight) can be taken as Credit

Inward Freight

Outward Freight

CCE V. ABB Limited, 2011 (23) STR 97 (Kar)

Credit may be taken till 1.4.08

37

GTA & POTR

Notwithstanding anything contained in these rules,

POTR w.r.t services notified u/s 68(2),

shall be the date on which payment is made :

Provided that, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist

Rule 7

POTR w.r.t. service receiver i.e. person liable to pay ST

POTR w.r.t. service provider i.e. GTA ?

Rule 3 of the POTR

38

GTA & POPS

The place of provision of services of transportation of goods

Other than by way of mail or courier,

Shall be the place of destination of the goods :

POPS for GTA shall be

The location of the person liable to pay tax

What if location of person liable to pay tax O/s India

Proviso to Rule 2(1)(d)(B)

Provider of such service shall be liable to tax

39

Sponsorship Service

Receiver liable to pay ST if and only if

Service provided to:

Body Corporate

Partnership Firm

Located in taxable territory.

Body Corporate – Meaning as per Sec 2(7) of Companies Act, 1956

PF includes LLP – Rule 2(cd) of STR, 94

40

Arbitral Tribunal, Advocacy, Support Service by Govt

Receiver liable to pay ST if and only if

Service provided to Business Entity.

Business Entity defined U/s 65B(17)

Any person

Carrying out activity relating to

Industry, Commerce, Business or Profession.

Such BE located in taxable territory.

41

Arbitral Tribunal, Advocacy Service

Exemption U/n 25/12 ST dt.20.6.12

Services provided by-

(a) an arbitral tribunal to -

(i) any person other than a business entity; or

(ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year;

(b) an individual as an advocate or a partnership firm of advocates by way of legal services to,-

(i) an advocate or partnership firm of advocates providing legal services ;

(ii) any person other than a business entity; or

(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year; or

(c) a person represented on an arbitral tribunal to an arbitral tribunal

42

Negative Service – Government I

Service provided by Gvmt or Local Authority

Government – not defined in the Act

S.3(23) of General Clauses Act, 1897

Central Government – S.3(8) GCA

Art. 53, 77 of Constituion

Stated Government – S.3(60) GCA

Art 154, 166 of Constitution

Includes Union Territory

43

Negative List – I A

Local Authority – Defined U/s 65 B

A Panchayat – Article 243(d) of the Constitution

A Municipality - Article 243P(e) of the Constitution

A Municipal Committee/ District Board, with, the control or management of a municipal or local fund

A Cantonment Board – Sec. 3 of the Cantonments Act, 2006

A Regional/ District council - VI Schedule to the Constitution

A Development Board U/a 371 of the Constitution, or

A Regional Council U/a 371A of the Constitution.

44

Negative List – I B

Following Services by Govt, LA - TAXABLE, to the extent not covered elsewhere:

Speed Post, Express Parcel Post

Life Insurance & Agency Service

Performed by Postal Department

When provided by Postal Dept to Govt ?

Service in relation to

Aircraft or Vessel

Inside or Outside airport/ port

45

Negative List – I C Following Services by Govt,LA -TAXABLE, to the extent not

covered elsewhere: Transport of Goods or Passengers

Covered Elsewhere in clause (o) Support Services

Other than 3 services mentioned above

Provided to Business Entities. Payment of Service Tax

S.68(2) r/w Rule 2(1)(d)(iv) of STR,94

3 services mentioned before – Regn Concerned Gov/ Dep

Support Services except RIP – Service Receiver

Notification No.30/12 ST dt.20.6.12 –Para I(A)(iv) r/w Entry No.6

46

Negative List – I D

Support Service – Defined U/s 65B(49) - 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 by outsourcing from others and

Shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis;

47

Renting of Motor Car, Manpower Supply, Security Service & Works Contract Service

Receiver liable to pay ST if and only if:

Service provided by:

Individual

HUF

Partnership Firm, including AOP

Service receiver is a Business Entity, registered as a Body Corporate (Co)

Both Service provider and Service receiver located in taxable territory

48

Manpower Supply, Security Service Works Contract Service definition

Given Under Rule 2 of STR, 94

[(fa) “security services” means 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;]

(g) “supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.]

49

Manpower Supply, Security Service Works Contract Service definition

Given Under Sec 65B(54) of FA, 94

(54) “works contract” means 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;

50

Renting of Motor Car - Abatement

Sl.No. Description of taxable service Abatement Conditions

(1) (2) (3) (4)

9 Renting of any motor vehicle designed to carry passengers

60 No credit of input, input service &

capital goods are availed

51

52

Renting of MV

Without Abatement

SP – 60%

SP Charges ST on 60% in Inv

Collects Tax on 60% & Remits

to Govt

SR – 40%

Pays Value + Tax on 60% to

SP

Pays 40% through GAR 7

With Abatement

Abatement Claimed by SP

Abatement – 60%

SR pays 100% of 40%

Works Contract Alternative methods of valuation available as pre Rule 2A of

Valn Rules

(a) Value = (Gross Amount – Amount of materials on which VAT has been paid, if VAT paid on actual value of materials)

(b) Value = 40%, 60% or 70% of Total Amount

Total Amount = Gross Amount + FMV of Goods supplied + FMV of Services supplied – Amount charged for such Goods/ Services – VAT

In Notification No.30/12 ST dt.20.6.12

Explanation-II. - In works contract services, where both service provider and service recipient is the persons liable to pay tax, the service recipient has the option of choosing the valuation method as per choice, independent of valuation method adopted by the provider of service

53

Who has to get registered

Under Reverse Charge mechanism

Should service receiver get registered ?

Should service provider also get registered ?

What if the contractual agreement between service provider and receiver states that service provider must pay ST for the specific service?

54

Cenvat Credit

Cr Can be availed by SR, if it fulfills the definition of Input Service U/r 2(l) of CCR, 04

As regards RCM services, full Cr would be available to Service Recipient (SR) – since 100% paid by SR.

As regards JCM,

Whether 100% Cr would be available to SR or only the respective amount paid?

Whether service provider, who has paid partial amount can claim Cr?

55

Cenvat Credit

Whether Cenvat Cr can be used to make payment by service recipient when service tax is payable by him as recipient of service

Explanation to Rule 3(4) of CCR, 04

Refund of Credit U/r 5B of CCR, 04

Refund given to Service Providers

For Joint Charge Services Only

U/n 12/2014 CE (NT) dt.3.3.14

56

57

Cenvat Credit

ST payable by SP

SR avails Cr on receipt of Invoice

SR must pay value + ST within 3m from date of SP’s Inv

If payment not made within 3m, Cr to be reversed the next day

SR can again take Cr on the date of payment of Inv value + ST to SP

ST payable by SR

SR avails Cr on payment of ST

SR must pay ST within 6m from the date of SP’s Inv

If ST not paid as above, ST to be paid from Inv due date along with interest

for 6m

RCM, JCM Vis-à-vis SSP exemption

Whether service provider providing services on RCM, JCM eligible for SSP exemption benefit U/n 33/12 ST?

If eligible and availed by provider:

In case of RCM, whether service receiver not liable to pay ST.

Proviso to Para 1 of Notification No.33/12 ST.

58

RCM, JCM Vis-à-vis SSP exemption

In case of JCM

Can the Service provider avail benefit of exemption U/n 33/12 ST

Can the Service receiver avail benefit of exemption U/n 33/12 ST

Would service receiver end up paying ST whereas service provider does not pay his respective share ?

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Documents

Reverse Charge & Joint Charge Mechanism · Cenvat Credit Issues Tax Shift V. Exemption 2 . Background to GTA Service Generally – Person providing taxable service. – S.68(1) Exception