Reverse Charge Mechanism under Service Tax in the light of Notification no. 30/2012 ST,dated 20th June, 2012, Notification no. 45/2012 ST and 46/2012 ST, dated 7th August, 2012.

2. Under Reverse Charge Mechanism in Service Tax, Service Tax is
payable by service recipient instead of service provider. Service receiver
has to get himself registered under Service Tax. General exemption, up to
the allowable threshold limit of 10 Lakh rupees, is not available to the
service receiver and he has to file service tax return on prescribed interval.
With the addition of few new services in the List for reverse charge partial
reverse charge under service tax has been introduced for the first time. In
case of these services both service receiver and provider has to pay
service tax in prescribed ratio.
The reverse charge is applicable if service receiver /service provider
satisfy the following conditions as the case may be. In other case service
provider has to pay tax on full amount of service.
Sl.No. Description of a service Service Provider Service Receiver
1 Services provided by an any any
insurance agent to any
person carrying on insurance
business
2 Services provided or agreed where the consignor or the consignee is,—
to be provided by a goods (a) any factory registered under or governed by the
transport agency in respect Factories Act, 1948 (63 of 1948);
of transportation of goods by (b) any society registered under the Societies
road Registration Act, 1860 (21 of 1860) or under any other
law for the time being in force in any part of India;
(c) any co-operative society established by or under
any law;
(d) any dealer of excisable goods, who is registered
under the Central Excise Act, 1944 (1 of 1944) or the
rules made thereunder;
(e) anybody corporate established, by or under any
law; or
(f) any partnership firm whether registered or not
under any law including association of persons;
3 Services provided or agreed any body corporate/partnership firm
to be provided by way
of sponsorship
4 Services provided or agreed Arbitral tribunal Business entity with a turnover
to be provided by an arbitral more than rupees ten lakh in the
tribunal preceding financial year;
5 Legal Services provided individual or firm Business entity with a turnover
by advocate (whether more than rupees ten lakh in the
individual or firm) to any preceding financial year;
business entity
6 Services provided or agreed Government Business entity
to be provided by way /Local authority
of support service by
Government or local
authority

3. 7 (a) Services provided or Individual (prop ) / any company formed or
agreed to be provided by Partnership firm registered under the Companies
way of renting or hiring any (registered or Act, 1956 (1 of 1956) or a
motor vehicle designed to unregistered) / business entity registered as
carry passenger on abated HUF body corporate located in the
value. taxable territory;
(b) Services provided or
agreed to be provided by
way of renting or hiring any
motor vehicle designed to
carry passenger on non-
abated value.
8 Services provided or agreed
to be provided by way
of supply of manpower
or security services for any
purpose
9 Services provided or agreed
to be provided by way
of works contract
10 Any taxable any any
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
11 Service provided or agreed Director Company
to be provided by a director (individual)
of a company to the said
company
Explanation-I. - 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 (i.e. notification no.30/2012).
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.
Section 66B is the charging section for levy of service tax. Notification No. 36/2004-ST dated
31/12/2004 and Notification No. 15/2012-ST dated 17/03/2012 are superseded by notification
no.30/212 ST, dated 20/06/2012. Accordingly from old list notified vide notification 36/2004
31/12/2004 three services have been deleted namely:
1. Telecommunication
2. General Insurance auxiliary
3. Mutual Fund distributor services.

4. List of services applicable for reverse charge is given as
under.
Few new services have been added with partial reverse
charge. In case of these services both service receiver and
provider has to pay service tax in prescribed ratio. Now both
service receiver and service provider have to pay tax as per
prescribed % in case of four services.
This is applicable from 01.07.2012 except Security services
and Services by a director of a company to the said
company as both the above services shall be effective from
the date of publication in official gazette i.e. 7th August, 2012
Sl.No. Description of a service Percentage of service
tax payable by the
person
Providing Receiving
service the
service
1 Services provided or agreed to be provided by Nil 100%
an insurance agent to any person carrying on insurance
business
2 Services provided or agreed to be provided by a goods Nil 100%
transport agency in respect of transportation of goods
by road
3 Services provided or agreed to be provided by way Nil 100%
of sponsorship
4 Services provided or agreed to be provided by an arbitral Nil 100%
tribunal
5 Services provided or agreed to be provided by Nil 100%
individual advocate
6 Services provided or agreed to be provided by way Nil 100%
of support service 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
7 (a) in respect of services provided or agreed to be Nil 100 %
provided by way of renting or hiring any motor vehicle
designed to carry passenger on abated value.
(b) in respect of services provided or agreed to be 60% 40%
provided by way of renting or hiring any motor vehicle
designed to carry passenger on non-abated value.
8. Services provided or agreed to be provided by way 25% 75 %
of supply of manpower or security services (inserted
in notification 45-46 dated 07/08/2012) for any purpose
9. Services provided or agreed to be provided by way 50% 50%
of works contract
10 Any taxable services provided or agreed to be Nil 100%
provided by any person who is located in a non-
taxable territory and received by any person located in the
taxable territory (IMPORT OF SERVICES)
11 Provided or agreed to be provided by a director of a Nil 100%
company to the said company (Inserted through
notification 45-46/2012 dated 07/08/2012)
Payment of Service Tax shall be governed by POINT OF TAXATION RULES, 2011 as amended.

5. Meaning of Important terms:
1. As per section 65(54) of Finance Act "Insurance Agent"
has the meaning assigned to it in clause (10) of section
2 of the Insurance Act, 1938 (4 of 1938)
2. As per section 65B(26) of Finance Act “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.
3. As per section 65(105)(k)of Finance Act “supply of
manpower” means service provided or to be provided
to any person, by a manpower recruitment or supply agency in relation to the recruitment or
supply of manpower, temporarily or otherwise, in any manner.
[Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this
sub-clause, recruitment or supply of manpower includes services in relation to pre-recruitment
screening, verification of the credentials and antecedents of the candidate and authenticity of
documents submitted by the candidate]
4. As per section 65(99a) of Finance Act “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.
5. “arbitral tribunal” has the meaning assigned to it in clause (d) of section 2 of the Arbitration
and Conciliation Act, 1996 (26 of 1996);
“Advocate” has the meaning assigned to it in clause (a) of sub-section (1) of section 2 of the
Advocates Act, 1961 ( 25 of 1961);
“legal service” means any service 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.
6. As per section 65B(17) of Finance Act “Business entities” means any person ordinarily
carrying out any activity relating to industry, commerce or any other business or profession.
7. Section 65B(49) of Finance Act, 1994 provides the definition of “support services”. Support
services in respect of which service tax is payable by business entity receiving such services
from government or local authority are as under:
(i) Infrastructural Support Services;
(ii) Operational support Services;
(iii) Administrative Support Services;
(iv) Logistic Services;
(v) Marketing Services;
(vi) Advertisement Services;
(vii) Promotion Services;
(viii) Construction or Works Contract Services;
(ix) Security;
(x) Testing and Analysis
(xi) 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.
8. As per section 65B(31) of Finance Act "local authority" means-
(a) a Panchayat as referred to in clause (d) of article 243 of the Constitution;
(b) a Municipality as referred to in clause (e) of article 243P of the Constitution;
(c) a 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;

6. (d) a Cantonment Board as defined in section 3 of the Cantonments Act, 2006;
(e) a regional council or a district council constituted under the Sixth Schedule to the
Constitution;
(f) a development board constituted under article 371 of the Constitution; or
(g) a regional council constituted under article 371A of the Constitution;
9. As per section 65(105)(w) of Finance Act, “Security services" means service provided or to
be provided to any person, by a security agency in relation to the security of any property or
person, by providing security personnel or otherwise and includes the provision of services of
investigation, detection or verification of any fact or activity.
10. As per section 2(7) of Companies Act "Body corporate" or "Corporation" includes a
company incorporated outside India but does not include
(a) a corporation sole ;
(b) a co-operative society registered under any law relating to co-operative societies; and
(c) any other body corporate (not being a company as defined in this Act), which the
Central Government may, by notification in the Official Gazette, specify in this behalf.
11. As per section 65B(54) of Finance Act "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, improvement, repair, renovation, alteration
of any building or structure on land or for carrying out any other similar activity or a part
thereof in relation to any building or structure on land.
12. As per section 65B(35) of Finance Act "non-taxable territory" means the territory which is
outside the taxable territory.
13. As per section 65B(52) of Finance Act "taxable territory" means the territory to which the
provisions of this Chapter apply.
th
SOURCE: Notification no. 24/2012-ST dated 20 June, 2012
th
Notification no. 25/2012-ST dated 20 June, 2012
th
Notification no. 26/2012-ST dated 20 June, 2012
th
Notification no. 30/2012 ST, dated 20 June, 2012
th
Notification no. 45/2012 ST, dated 7 August, 2012
th
Notification no. 46/2012 ST, dated 7 August, 2012
http://www.servicetax.gov.in/st-notfns-home.htm

7. Issues related with legal service
If a business entity has taken a legal opinion
from individual advocate or Firm of advocates or arbitral
tribunal then business entity have to pay 100% of service
tax due on fees.
Issues related with renting or hiring any motor vehicle
designed to carry passenger on abated value
As per notification no. 26/2012, dated 20/06/2012, in
respect to services provided or agreed to be provided by
way of renting or hiring any motor vehicle designed to
carry passenger on abated value, the condition for
abatement is that CENVAT credit on inputs, capital goods
and input services, used for providing the taxable service,
has not been taken under the provisions of the CENVAT
Credit Rules, 2004.
In case the aforesaid services are provided by a company, to any person, who is not engaged in the
similar line of business, the person responsible to pay tax shall be the service provider
Issues related with Security Services
When security service is provided by Individual, HUF, partnership firm or AOP to a body corporate
business entity then only provision of reverse charge is applicable.
As Co-operative societies are not covered by the above definition of body corporate, they are not
liable to pay service tax under reverse charge. Services provided by entity registered under section
12AA of Income Tax Act, by way of charitable activities, is also exempted under mega exemption
notification.
When security services received from government or local authority, liability to pay service tax would
be on business entity receiving such services on full consideration paid or payable to local authority
(not on 75%).
Even non company service receiver would also be liable to pay service tax under reverse charge.
However, the status of service provider as local authority should be examined as per definition of local
authority given in the Section 65B(31) of the Finance Act.
Issues related with support service by Government or local authority
Services specified in sub-clauses (i), (ii) and (iii) of clause (a) of section 66D of the Finance Act,1994
are:
(i) 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;
(ii) Services in relation to an aircraft or a vessel, inside or outside the precincts of a port or an
airport; and
(iii) Transport of goods or passengers.
Issues related with Works Contract
Valuation of Works Contract:
(i) 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.

8. (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;
Issues related with Director’s Service
Service receiver is liable to pay service tax under reverse charge on sitting fee and commission paid
or payable to Director. It is now mandatory for the nonexecutive director to issue an invoice as they
are now covered under service tax laws. However service tax is not applicable for Employee director
receiving salary.
Employee employer relationship between the director and the company can be created either by a
service agreement between a director of the company and the company or by the articles of the
company.
Issues related with payment of service tax out of cenvat credit
As per Rule 3(1) of the CENVAT Credit Rules, 2004, A manufacturer or producer of final products or a
provider of output service shall be allowed to take cenvat credit.
As per Notification No.28/2012-Central Excise (N.T), dated 20th June, 2012, “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 {Services included in Negative List} of the Finance Act ; or
(2) Where the whole of service tax is liable to be paid by the recipient of the service.
Thus except above two cases payment of service tax can be made out of cenvat credit. But with
introduction of Explanation to rule 3 of Cenvat Credit Rules, vide Notification No.28/2012-Central
Excise (N.T), dated 20th June, 2012, the recipient of service is not allowed to pay service tax on
such services received out of cenvat credit under reverse charge mechanism.
“Explanation - CENVAT credit cannot be used for payment of service tax in respect of services
where the person liable to pay tax is the service recipient”.