Reverse Charge Mechanism

1. Reverse Charge Mechanism By Sunil Singh M. V. Damania and Co. Chartered Accountants 01st February,2013

2. Introduction of Reverse Charge Mechanism (RCM) What do you mean by RCM ?

3. Applicability Notification No. 30/2012- ST dated 20/06/2012 Categories covered • Services under full reverse charge mechanism (RCM) • Services under partial reverse charge mechanism (RCM)

4. List of services under full Reverse Charge Mechanism

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7. Goods Transport Agency Services Provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is,— • Any factory registered under or governed by the Factories Act, 1948 (63 of 1948); • Any 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; • Any co-operative society established by or under any law; • Any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) • Any body corporate established, by or under any law; or • Any partnership firm whether registered or not under any law including association of persons;

8. Relevant aspects relating to the above are briefed here as below : Transportation of fruits, vegetables, eggs or milk by road in a goods carriage is exempt from Service Tax. (Refer point no. 21 of notification no. 25/2012). No Service Tax is to be paid when Gross Amount charged on all consignments transported in a goods carriage does not exceed Rs. 1500/-. No Service Tax is to be paid when Gross Amount charged on individual consignment transported in a goods carriage does not exceed Rs. 750/- Taxable value of Goods Transport Agency Service shall be exempt in excess of 25%. In other words, abatement of 75% is available. Services tax paid on service provided for transport of goods from inland container depot to the port of export can be claimed as refund.

9. Goods Transport Agency

10. Illustrations XYZ Factory Gurgaon Haryana Liable to pay freight Registered Dealer a partnership firm in Bhopal in M.P XYZ Factory gurgaon Haryana Registered Dealer a partnership firm in Jammu Non Taxable Territory liable to pay freight ABC Transport Delhi Back

11. Legal Services Legal services provided by advocates or partnership firms of advocates are exempt from service tax when provided to the following: An advocate or partnership firm of advocates providing legal services. any person other than a business entity. a business entity with a turnover up to rupees ten lakh in the preceding financial year. However, in respect of services provided to business entities, with a turnover exceeding rupees ten lakh in the preceding financial year, tax is required to be paid on reverse charge by the business entities. Back

12. Non Taxable Territory Taxable Territory ABC A Service provider DEF A Service Receiver Providing Taxable service to Providing taxable service to XYZ A Service Provider PQR A Service receiver Providing taxable services to

13. Partial Reverse Charge Mechanism ?

14. List of services under partial reverse charge mechanism

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16. Basic Condition in Partial RCM Service Provider Individual HUF Partnership Firm AOP Service Receiver Business entity registered as body corporate He should be located in taxable territory Back

17. Rent a Cab Services

18. WORKS CONTRACT ST to be discharge by the Recipient under Reverse Charge will be 50% of the Taxable Liability Maintenance, repairs, completion & finishing service such as glazing, plastering, floor and wall tiling etc. eg. Interior Decoration Maintenance or repairs or reconditioning or restoration or servicing of goods eg. Amc Original Works i.e. New Construction, all types of addition & alteration and erection, commissioning or installation of PM/Equipment etc ST = (60*12.36%)*50% = 3.708 ST = (70*12.36%)*50% = 4.326 ST = (40*12.36%)*50% = 2.472 Taxable Amount = 60% of the Total Amount Charged Taxable Amount = 70% of the Total Amount Charged Taxable Amount = 40% of the Total Amount Charged

19. Details in Invoice under RCM Governing Rule: Rule 4A of the Service Tax Rules 1994. Invoice shall indicate the name, address and the registration number of the service provider and person receiving taxable service; the description and value of taxable service provided or agreed to be provided; and the service tax payable thereon. As per clause (iv) of sub-rule (1) of the said rule 4A "the service tax payable” thereon' has to be indicated. The service tax payable would include service tax payable by the service provider.

20. Case 1 Where Service Tax has been charged fully in Invoice DebitCredit Expense A/c Dr 100.00 - Service Tax Input Credit A/c Dr 7.42 - Service Tax Deferred Input A/c Dr 4.94 - To Vendor A/c - 105.42 To TDS Payable A/c - 2.00 To Service Tax Payable A/c - Reverse Charge - 4.94 112.36 112.36 Case 2 Where Service Tax has not been charged in Invoice Expense A/c Dr 100.00 - Service Tax Deferred Input A/c Dr 12.36 - To Vendor A/c - 97.75 To TDS Payable A/c - 2.25 To Service Tax Payable A/c - Reverse Charge - 12.36 112.36 112.36

21. Case 3 In case of Abatement ( e.g. 40%) DebitCredit Expense A/c Dr 100.00 - Service Tax Input Credit A/c Dr 4.94 - To Vendor A/c - 98.00 To TDS Payable A/c - 2.00 To Service Tax Payable A/c - Reverse Charge - 4.94 104.94 104.94

22. Important Points relating to RCM • Cenvat can not be availed for discharging the ST Liabilities on RCM • ST Paid under RCM can be utilize towards the discharge ST on output services • Threshold exemption of upto Rs.10 Lac is not applicable here in RCM except Legal services • Allowed Refund of unutilized cenvat credit availed from input services as per Rule 5B of Central Exice Rules,2004

23. Thank You