All about reverse charge mechanism
Section 68 (1) of Chapter V of Finance Act, 1994 provides that every person who provides taxable service to any person shall have to pay service tax according to the rate specified in section 66B in such way and within such time as may be provided.
Section 68(2) of Chapter V of the Finance Act, 1994 has now introduced the reverse charge mechanism concept in the country.
The section provides that in respect of taxable services that be notified by the Central Government in the Official Gazette, the service tax shall be paid by such person and in such way as may be prescribed at the rate stated in section 66B of the Act and all the provisions of the said Chapter shall apply to the concerned person as if he is liable for paying the service tax for such service.
The proviso to the section 68 provides that the Central Government may notify the service and the extent of service tax that is payable by such person and the provisions Chapter V shall apply to the said person to the extent as stated therein and the rest part of the tax shall be paid by the service provider.
The Central Government by exercising powers under Section 68(2) of the Finance Act, 1994 has notified certain services under which the Government has fixed the percentage payable by the service provider and the person who receives such service by Notification No. 30/2012-Service Tax, made on 20.06.2012.
The said notification has been amended by other Notifications being No. 45/2012 dated 07.08.2012; No. 10/2014 dated 11.07.2014, etc.
What are taxable services?
The said notification notified the following services as taxable services stated below:
1. Services provided by an insurance agent to anybody dealing with the insurance business;
2. Services provided by a recovery agent to a bank or other financial institution;
3. Services provided by a marketing agent dealing with lottery tickets relating to a lottery in any way to a lottery distributor or selling agent of the State Government under the Lottery Act, 1998;
4. Services provided by a goods transport agency for transportation of goods by road, where the person liable to pay is:
a. any factory registered under the Factories Act, 1948;
b. any co-operative society established under any law;
c. any dealer of goods who is registered under the Central Excise Act, 1944 ;
d. any corporate body established under any law; or
e. any partnership firm either registered or not under any law;
f. any association of persons.
5. Services provided or agreed to be provided by an arbitral tribunal, or a firm of advocates or a junior advocate by way of legal services, or Government or local authority to any business entity located in the country;
6. Services provided by a director of a company or a corporate body to the said company or the corporate body;
7. Services provided through renting of a motor vehicle made to carry passengers to any person who is not in similar business or supply of labour for any purpose or security services located in the country;
Extent of tax liability:
The Government has also fixed the liability of tax payable by the service provider and the receiver of such service.
1. The person who is liable to pay freight for the transportation of goods by road shall be treated as the person who receives the service.
2. In works contract services, in case both service provider and recipient are the persons who are liable to pay tax, the service recipient has the option to choose the valuation method according to his choice independent of the method chosen by the provider of service.
