REVERSE CHARGE MECHANISM Reverse Charge Mechanism (section 68(2)) is introduced in service tax with effect

from 1/7/2012. With its introduction, service receiver is also liable to file return and pay service tax partially or wholly as the case may be.

Motive of this change is mainly more tax compliance and increase tax revenue but it is giving hardship to service receiver as even for small payment of Rs 1000 or Rs 100 service receiver has to get registered.

Reverse charge is applicable on specific services only. Following services are subjected to Reverse charge.SI.No.

Description of service Percentage of service tax payable by the person providing service

Percentage of service tax payable by the any person liable other than service provider

1 In respect of the services provided or agreed to be provided by an insurance agent to any person carrying on insurance business

Nil 100%

way 1A

1B

1C

As per notification no. 10/2014In respect of services provided or agreed to be provided by recovery agent to banking co. or a financial institution.

As per notification no. 7/2015 In respect of services provided or agreed to be provided by a mutual fund agent or distributor to a mutual fund co.

In respect of service provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor

Nil

Nil

Nil

100%

100%

100%

2 In respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road.

Nil 100%

3 In respect of services provided or agreed to be provided by way of sponsorship to any body corporate or partnership firm located in the taxable territory

Nil 100%

5 In respect of services provide or agreed to be provided by an individual advocate or a firm of advocates by way of legal services

Nil 100%

5A In respect of services provided or agreed to be provided by a director of a Company to the said Company [ As per Notification No. 45/2012-Service tax]

Nil 100%

6 In respect of services provided or agreed to be provided by government or local authority by way of support servicesAs per notification no.7/2015The words by “way of support services” shall be omitted

Nil 100%

7 (a) In respect of services provided or agreed to be provided by way of renting of a motor vehicle to carry passengers on abated value

(b) In respect of services provided or agreed to be provided by way of renting o motor vehicle on non-abated value

As per notification no.10/2014The liability is imposed equally on both the parties

Nil

60%

50%

100%

40%

50%

8 In respect of services provided or agreed to be provided by way of supply of manpower for any purpose or security servicesAs per notification no.7/2015 and applicable from 1st march 2015 – the rates have been changed to impose entire liability on the service receiver

25%

Nil

75%

100%

9 In respect of services provided or agreed to be provided in service portion in execution of works contract

50% 50%

10 In respect of taxable services provided or agreed to be provided by any person who is located in a non taxable territory and received by any person located in the taxable territory

Nil 100%

11. As per notification no.7/2015 the following sub clause shall be added- In respect of services provided or agreed to be provided by a person involving an aggregator in any manner.

Nil 100%

Explanations 1.- The person who pays or is liable to pay freight for the transportation of goods by road in goods carriage, located in the taxable territory shall be treated as the person who receives the service for the purpose of this notification.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. 2. This notification shall come into force on the 1st day of July, 2012.

3. provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers to any person who is not in the similar line of business or supply of manpower for any purpose or service portion in execution of works contract by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory.

ABATEMENTS- NOTIFICATIONS NO.26/2102SI, NO.

Description of taxable services Percentage

Conditions

1 Services in relation to financial leasing including hire purchase 10 Nil

2 Transport of goods by rail 30 Cenvat credit on inputs and capital goods used for providing the taxable services has not been taken under the provisions of the CENVAT Credit Rules 2004

3 Transport of passengers, with or without accompanied belongings by rail

30 Same as above

4 Bundled services by way of supply of food or any other article of human consumption or any drink in the human premises(including hotel,club, pandal especially arranged for organizing a function) together with renting of such premises

70 Same as above

5 Transport of passengers by air, with or without accompanied belongings(a) Economy Class(b) Other than Economy Class

4060

Cenvat credit on inputs and capital goods used for providing the taxable services has not been taken under the provisions of the CENVAT Credit Rules 2004

6. Renting of hotels, inns, guest 60 Same as above houses, clubs, campsites or other commercial places meant for residential or lodging purposes.

60 Same as above

7 Services of goods transport agency in relation to transportation of goods (w.e.f 01/04/2015)

30 Same as above

9. Renting of motor cab , w.e.f 40 Same as above

9A. Transport of passengers, with or without accompanied belongings, by a contract carriage other than motorcab.

40 Cenvat credit on inputs and capital goods used for providing the taxable services has not been taken under the provisions of the CENVAT Credit Rules 2004

9. Transport of goods in a vessel 30 Same as above

10. Services by a tour operator in relation to(i) a package tour

25

11. (ii) a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour

10

(iii) any services other than specified at (i) and (ii) above.

40

12 Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

25

Explanations For the purposes of exemption at Serial number 1 - i) The amount charged shall be an amount, forming or representing as interest, i.e. the difference between the installments paid towards repayment of the lease amount and the principal amount contained in such installments;

SIMPLE INTEREST PER ANNUM FOR DELAYED PAYMENT OF SERVICE TAX

Sl.No. Period of delay Rate of simple interest

1. Up to six months 18 per cent.

2. More than six months and up to one year

18 per cent. for the first six months of delay and 24 per cent. for the delay beyond six months.

3. More than one year 18 per cent. for the first six months of delay; 24 per cent. for the period beyond six months up to one year and 30 per cent. for any delay beyond one year.

WORKS CONTRACT NOTIFICATION 24/2102 Taxable Service” means any service provided or to be provided to any person, byany other person in relation to the execution of a works contract, excluding works contractin respect of roads, airports, railways, transport terminals, bridges, tunnels and dams.Explanation.—For the purposes of this sub-clause, “works contract” means a contractwherein,—(i) transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods, and(ii) such contract is for the purposes of carrying out,—(a) erection, commissioning or installation of plant, machinery, equipment or structures, whether pre-fabricated or otherwise, installation of electrical and electronic devices, plumbing, drain laying or other installations for transport of fluids, heating,

ventilation or air-conditioning including related pipe work, duct work and sheet metal work, thermal insulation, sound insulation, fire proofing or water proofing, lift and

escalator, fire escape staircases or elevators; or(b) construction of a new building or a civil structure or a part thereof, or of a pipeline

or conduit, primarily for the purposes of commerce or industry; or(c) construction of a new residential complex or a part thereof; or(d) completion and finishing services, repair, alteration, renovation or restoration of, or similar services, in relation to (b) and (c); or(e) turnkey projects including engineering, procurement and construction or(f) commissioning (EPC) projects

Determination of value of service portion in the execution of a works contract.- Subject to the provisions of section 67, the value of service portion in the execution of a works contract , referred to in clause (h) of section 66E of the Act, shall be determined in the following manner, namely:- (i) Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract. Explanation.- For the purposes of this clause,-(a) gross amount charged for the works contract shall not include value added tax or sales tax, as the case may be, paid or payable, if any, on transfer of property in goods involved in the execution of the said works contract; (b) value of works contract service shall include, - (i) labour charges for execution of the works; (ii) amount paid to a sub-contractor for labour and services; (iii) charges for planning, designing and architect’s fees; (iv) charges for obtaining on hire or otherwise, machinery and tools used for the execution of the works contract;

(vii) other similar expenses relatable to supply of labour and services; and(viii) profit earned by the service provider relatable to supply of labour and services; (c) Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.

(ii) Where the value has not been determined under clause (i), the person liable to pay tax on the service portion involved in the execution of the works contract shall determine the service tax payable in the following manner, namely:- (A) in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract;  (B) in case of works contract entered into for maintenance or repair or reconditioning or restoration or servicing of any goods, service tax shall be payable on seventy percent. of the total amount charged for the works contract; (C) in case of other works contracts, not covered under sub-clauses (A) and (B), including maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fittings of an immovable property , service tax shall be payable on sixty per cent. of the total amount charged for the works contract; 

Explanation 1.- For the purposes of this rule,-(a) “original works” means- (i) all new constructions; (ii) all types of additions and alterations to abandoned or damaged structures on

land that are required to make them workable; (iii) erection, commissioning or installation of plant, machinery or equipment or

structures, whether pre-fabricated or;  otherwise(d) “total amount” means the sum total of the gross amount charged for the works contract and the fair market value of all goods and services supplied in or in relation to the execution of

the works , whether or not supplied under the same contract or any other contract, after deducting-

(i) the amount charged for such goods or services, if any; and (ii) the value added tax or sales tax, if any, levied thereon: