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  1. 1. Presents Master Class On Understanding Service Tax Law Nuances Conducted by Dr. Sanjiv Agarwal FCA, FCS Monday, 16th December, 2013 @ Mumbai © Dr. Sanjiv Agarwal 1 Downloaded from
  2. 2. • Every person providing taxable service (service provider) shall pay tax @ 12.36% , to be collected in prescribed manner. [section 68(1)] • Service recipient is a person liable to pay service tax in certain cases [section 68 (2)] • Defined in rule 2(1)(d) of Service Tax Rules, 1994 and 2(m) of POP Rules, 2012 • Person liable to pay service tax u/s 68 read with rule 2(1)(d) of ST Rules, 1994 • Persons liable  Service provider  Specified service receivers [Rule 2(1)(d)(i)(A to G)]  Importer of service 2 Downloaded from
  3. 3. In case of services covered under Section 68(2) read with 2(1)(d) Service Liable to pay service tax Insurance agent Service Recipient (i.e. Insurance company) GTA Specified persons In other case Person liable to pay fright GTA Sponsorship service to body corporate / firm Recipient of service Arbitral tribunal / individual advocate/ firm of advocate Recipient of service Support service to Govt. / local authority subject to other conditions Recipient of service Director‟s services to Companies Recipient of service (i.e. Company ) Rent-a-cab service subject to other conditions Recipient of service Supply of manpower service subject to other conditions Recipient of service Works contract service subject to other conditions Recipient of service Services provided from non-taxable territory to any person in taxable territory Recipient of service 3 Downloaded from
  4. 4. • Every person who is liable to pay service tax shall take registration under service tax as per section 69 of Finance Act, 1994 • Service recipient shall obtain registration under service tax as recipient of service, pay service tax and file return • Assessees who have to take registration  Service provider who has provided a taxable services of value exceeding Rs. 9 lakhs in the preceding financial year  Service receiver liable to pay service tax under reverse charge mechanism u/s 68(2) / rule 2(1)(d)  Input service distributor  Importer of service being person liable u/s 68(2) 4 Downloaded from
  5. 5. Service tax payment - different scenarios Service provider pays service tax Service receiver pays service tax Both service provider and service receiver pay service tax 5 Downloaded from
  6. 6. • Normally, service tax is payable by person who provides the service • Section 68(2) makes provision for reverse charge i.e. making person receiving the service liable to pay tax • Authority for reverse charge u/s 68(2) of Finance Act, 1994 • Person liable to pay tax – Rule 2(1)(d) of Service Tax Rules, 1994 • W.e.f. 1.7.2012, a new scheme of taxation is applicable whereby the liability of payment of service tax shall be both on the service provider and the service recipient (Notification No. 30/2012-ST, dated 20.6.2012 ) • The extent to which tax liability has to be discharged by the service receiver is specified in Notification No. 30/2012-ST dated 20.6.2012. 6 Downloaded from
  7. 7. Under Partial Reverse Charge (Proportional / Joint) • • • Renting of motor vehicles Manpower supply & security services Works contracts Under Full Reverse Charge (100%) • Insurance related services by agents • Goods Transportation By Road • Sponsorship • Arbitral tribunals • Legal services • Company director's services • Services provided by Government / local authority excluding specified services • Services provided by persons located in non-taxable territory to persons located in taxable territory. Downloaded from 7
  8. 8. • Liabilities of both the service provider and service receiver are statutory and independent of each other • Liability cannot be shifted by mutual agreement • Reverse charge will not apply where the service receiver is located in non-taxable territory • Reverse charge shall not be applicable if provider of service was liable before 1.7.2012 • Service Tax will not be payable by service receiver under reverse charge, if service was provided prior to 1.7.2012, even if payment is made after 30.06.2012 8 Downloaded from
  9. 9. • Credit of tax paid can be availed by service recipient if it is input service for him • The credit of tax paid by the service recipient under partial reverse charge would be available on the basis on the tax payment challan (but invoice required) • Service provider under RCM may claim refund of tax paid under rule 5(b) of CCR, 2004 • Service Tax under reverse charge to be paid within 6 months on actual payment (Rule 7 of POT Rules, 2011) • Small scale benefit is available only to service provider (not to service receiver), if entitled • Service receiver under reverse charge cannot avail exemption of Rs. 10 lakh under Notification No. 33/2012-ST dated 20.06.2012 9 Downloaded from
  10. 10. • Valuation of services by services provider and service receiver can be on different principles, if permitted by law (e.g. works contract - Refer Notification No. 30/2012-ST, explanation II) • Invoice to be prepared as per Rule 4A of Service Tax Rules, 1994 • It is a statutory obligation (not contractual) on the service recipient to pay Service Tax, whether under full or proportional reverse charge • Service Tax under reverse charge has to be paid only by cash vide GAR Challan No. 7 and it cannot be paid by way of utilization of Cenvat Credit. • Once paid, Cenvat credit can be taken for paying eligible input service • Service receiver liable only for his portion 10 Downloaded from
  11. 11. • In respect of manpower supply and security services, works contract services and renting of motor vehicles to carry passenger, reverse charge shall be applicable only when following two conditions are satisfied – • • service receiver is a business entity registered as a body corporate, and service provider is any one of the following entities –     Individual Hindu undivided family (HUF) Firm (including limited liability partnerships) Association of persons If both the above conditions are not satisfied in respect of these three services, Service Tax shall be payable by the service provider in ordinary course. 11 Downloaded from
  12. 12. Service Provider Service Receiver Individual /HUF/ Partnership firm /AOP Business entity – body corporate Joint Individual /HUF/ Partnership firm /AOP Individual /HUF/ partnership firm /AOP 100 % by service provider Business entity – Individual /HUF/ Body Corporate / Partnership firm Company /AOP 100 % by service provider Business entity – Body Corporate 100 % by service provider Business entity – Body Corporate Service Tax Payable by 12 Downloaded from
  13. 13. • For three specified services provided by business entities being company, society, co-operative society, trust etc, reverse charge will not apply. • Reverse charge will also not apply where the service recipient is any person or business entity not being a body corporate in case of three specified services • “Business Entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession • “Body Corporate” means the meaning assigned to in clause (7) of Section 2 of the Companies Act, 1956 and section 2(11) of 2013 Act. • Company , corporation and LLP are „body corporate‟ • Firm, HUF, Trust and Co-operative society are not „body corporate‟ • But firm includes LLP for Service Tax 13 Downloaded from
  14. 14. Sr. No Description of Service Service Provider Service Receiver 1. Services provided by an insurance agent to any person carrying on insurance business Nil 100% 2. Services provided by a goods transport agency in respect of transportation of goods by road Nil 100% 3. Services provided by way of sponsorship Nil 100% Downloaded from 14
  15. 15. Sr. No Description of Service Service provider Service receiver 4. Services provided by an arbitral tribunal Nil 100% 5. Services provided by 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 ( w.e.f 7.08.2012) Nil 100% 6. Services provided by Government or local authority by way of support services excluding,1) renting of immovable property, 2) postal services 3) transport of goods / passengers 4) air craft or vessel Nil 100% Downloaded from 15
  16. 16. Sr. No Description of Service 7. Hiring of Motor Vehicle (a) renting of a motor vehicle designed to carry passengers on abated value to any person not engaged in the similar line of business (b) renting of a motor vehicle designed to carry passengers on non abated value to any person who is not engaged in the similar line of business 8. Services provided by way of supply of manpower for any purpose or security services (w.e.f 07.08.2012) Downloaded from Service provider Service receiver Nil 100 % 60% 40% 25% 75 % 16
  17. 17. Sr. No Description of Service 9. Services provided in service portion in execution of works contract 10. Services provided by any person who is located in a non-taxable territory and received by any person located in the taxable territory Downloaded from Service provider Service receiver 50% 50% Nil 100% 17
  18. 18. Director’s Services • Vide entry No. 5A of N. No. 30/2012 as amended by N. No. 45 and 46/2012 • Service tax is payable under reverse charge by companies who receive services from their directors who are not in employment • Sitting fees, commission, bonus, etc. are subject to service tax • WTDs /MDs /EDs who are under contractual employment with the company and receive salary or remuneration from the company will not be covered - considered as employees of the company • Director can be appointed either in an individual capacity or as a nominee for company , association or any other entity including Government. 18 Downloaded from
  19. 19. Director’s Services • Interest on loan by director to company, dividend on shares, other professional charges on account of services not rendered as a director (in professional capacity) are not liable to Service Tax • In case of nominee director, the nominating company who receives fees will be liable to pay service tax • The invoice / receipt to be issued by the directors within 30 days • In case of nominee directors, the invoice will be issued by the nominating company • In the case of Government nominees, the services shall be deemed to be provided by the Government but liable to be taxed under reverse charge basis 19 Downloaded from
  20. 20. Particulars Position upto 6.8.2012 Position w.e.f. 7.8.2012 Individual To be registered and pay Director in his service tax individual capacity Service tax paid by the company Nominee Director Paid by the nominee director‟s company Paid by the nominee director‟s company 20 Downloaded from
  21. 21. Manpower Supply Services  Service is manpower supply service if under command of principal employer  Cleaning service, piece basis / job basis contract is not manpower supply service  Service tax will be applicable on salary plus PF, ESI, commission of labour contractor and other charges  Employees sent on deputation are also covered under manpower supply services 21 Downloaded from
  22. 22. Security Services  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  CA services are not security services  Distinction between manpower supply & security services 22 Downloaded from
  23. 23. Rent-a-cab Service • In case of renting of motor vehicles to carry passengers where abatement is also available, reverse charge basis is proportional depending upon the abatement on the condition that no Cenvat Credit has been availed. The service provider should provide a certificate, either in the invoice itself or separately. • In case of renting of motor vehicle to carry passengers, reverse charge applies only where service receiver is not engaged in same business. 23 Downloaded from
  24. 24. Rent-a-cab Service • Reverse charge will be applicable when renting to a person who is not in similar line of business • Service receiver will pay on 40% in every case whether abatement is claimed or not • No Cenvat credit (not an input service) • Cost to company 24 Downloaded from
  25. 25. Goods Transport Service • Service tax liability arise when consignment note is issued • GTA will be liable to pay tax only when both service provider and service receiver are individuals • Tax on 25% (abated value), if GTA does not avail Cenvat Credit, otherwise tax on 100% value 25 Downloaded from
  26. 26. Legal Services Service Provider Service Receiver Individual Advocate / Firm / LLP Business entity with turnover > Rs 10 lakhs in preceding financial year Arbitral Tribunal Business entity with turnover > Rs 10 lakh in previous financial year 26 Downloaded from
  27. 27. Works Contract Services Original works i.e. new construction, all types of addition & alteration and erection, commissioning or installation of PM/Equipment etc . Taxable Amount = 40% of the Total Amount Charged ST = (40*12.36%)*50% = 2.472 Maintenance or repairs or reconditioning or restoration or servicing of goods e.g. AMC Taxable Amount = 70% of the Total Amount Charged ST = (70*12.36%)*50% = 4.326 Maintenance, repairs, completion & finishing service such as glazing, plastering, floor and wall tiling etc. e.g. interior decoration Taxable Amount = 60% of the total amount charged ST = (60*12.36%)*50% = 3.708 27 Downloaded from
  28. 28. Services provided by Government / local authority • Reverse charge applicable to all services except specified services • Government Department needs to be registered and pay tax on support services of   Speed post, express parcel, life insurance.  Transport of goods and/ or passengers  • Renting of immovable properties Services in relation to vessel or aircraft Services to be provided to any business entity located in taxable territory 28 Downloaded from
  29. 29. Additional information suggested on the invoice – • Amount of Service Tax based on his share of Service Tax liability, if any, (which service recipient is required to pay to the service provider) - in case of joint or proportionate reverse charge liability. • Fact that entire amount of Service Tax on the invoice is payable by the service recipient under reverse charge (if so). • Invoice amount is inclusive / exclusive of applicable Service Tax. • Alternatively, in case of proportionate reverse charge, service provider should charge Service Tax only on that part of the invoice for which he is liable to pay and wants to recover from the service recipient and mention that balance amount is payable by the service recipient. Downloaded from 29
  30. 30. THANK YOU FOR YOUR PRECIOUS TIME AND ATTENTION Dr. Sanjiv Agarwal FCA, FCS, Jaipur / Delhi Downloaded from 30