This document contains contact details for K.Vaitheeswaran, an advocate and tax consultant based in Chennai and Bangalore, India. It then provides information on India's reverse charge mechanism under service tax law, including various notifications specifying the percentage of tax to be paid by the service provider and receiver for different services. It discusses provisions, exemptions, and case laws related to the reverse charge mechanism for goods transport agency services, sponsorship services, arbitral tribunal services, legal services, support services, renting of motor vehicles, supply of manpower, service portion of works contracts, and other international and director services.

1. K.VAITHEESWARAN
ADVOCATE & TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : askvaithi@yahoo.co.uk, vaithilegal@yahoo.co.in
SERVICE TAX
REVERSE CHARGE MECHANISM

2.  Section 68(2) provides that in respect of such
taxable services as may be notified the Government
may specify that the tax shall be paid by such
person in such manner at the rate specified in
Section 66B and all the provisions of this Chapter
shall apply to such person as if he is a person liable
for paying service tax.
 The proviso provides that the Government may
notify the service and the extent of service tax
payable by such person and the remaining part shall
be paid by the service provider.

3. Nature of
Service
Status of
Service
Provider
Status of
Service
Receiver
Percentage of Service Tax Payable by
Service
Provider
Service Receiver
Services of
Insurance Agent to
person carrying on
insurance business
Any person Insurance
Company
Nil 100%
 Notification No.30/2012 dated 20.06.2012 w.e.f. 01.07.2012 as amended has
been issued under Section 68(2) specifying the persons liable to pay service tax.
The categories of the service and the amount of tax component payable by the
service provider and service receiver respectively is given in the following table:-

4. Nature of
Service
Status of
Service
Provider
Status of
Service
Receiver
Percentage of Service Tax Payable by
Service
Provider
Service Receiver
Goods Transport
Agency
Any person Factory /
society / co-
operative
society /
dealer of
excisable
goods / body
corporate /
partnership
firm.
Nil 100%
The earlier provisions
linking with categories of
persons liable to pay
freight such as factory,
company, etc. and the 75%
abatement have been
retained.

5.  Old law provided for a taxable service definition
through Section 65(105)(zzp) covering services by a
GTA in relation to transport of goods by road in a
goods carriage. New law does not have a definition of
goods carriage.
 GTA is defined to mean any person who provides
service in relation to transport of goods by road and
issues consignment note by whatever name called.

6.  GTO Vs. GTA
 Notification No.25/2012 provides for
exemption in respect of agricultural produce,
food stuff including flours, tea, coffee,
jaggery, sugar, milk products, salt and edible
oil excluding alcoholic beverages….. and
other items.
 Services by way of hire to a GTA a means of
transportation of goods is exempted.

7. Nature of
Service
Status of
Service
Provider
Status of
Service
Receiver
Percentage of Service Tax Payable by
Service
Provider
Service Receiver
Sponsorship
Services
Any person Body
corporate or
partnership
firm located
in the taxable
territory.
Nil 100%

8.  Where an association receives money by way of sponsorship from
a body corporate or partnership located in India then the person
making the payment towards sponsorship has to discharge
applicable service tax under reverse charge mechanism.
 Where an association receives money by way of sponsorship from
an individual located in India, then the association is liable to
discharge applicable service tax.

9.  When an association receives money by way of
sponsorship from any person located outside India
then Rule 3 would apply and accordingly the place
of provision of service is the location of the recipient
of service which is the non-taxable territory and
therefore there is no service tax.

10. Nature of
Service
Status of
Service
Provider
Status of
Service
Receiver
Percentage of Service Tax Payable by
Service
Provider
Service Receiver
Services provided
by an arbitral
tribunal
Arbitral
Tribunal
Business
entity located
in the taxable
territory.
Nil 100%

11.  There is an exemption for services provided
by a Arbitral Tribunal to a person other than a
business entity.
 There is also en exemption for services
provided by an Arbitral Tribunal to a business
entity when the turnover is upto 10 lakhs in
the preceding financial year.

12. Nature of
Service
Status of
Service
Provider
Status of
Service
Receiver
Percentage of Service Tax Payable by
Service
Provider
Service Receiver
Legal Services Individual
Advocate or a
Firm of
Advocates
Business
entity located
in the taxable
territory.
Nil 100%

13.  Services provided by an individual as an
advocate or a firm of advocates by way of
legal services is exempted:
(i) When provided to an advocate or firm of
advocates providing legal services;
(ii)When provided to any person other than a
business entity
(iii)When provided to a business entity with the
turnover upto 10 lakhs of rupees in the
preceding financial year

14. Nature of
Service
Status of
Service
Provider
Status of
Service
Receiver
Percentage of Service Tax Payable by
Service
Provider
Service Receiver
Support services Government
or local
authority
excluding
certain
specified
services.
Business
entity located
in the taxable
territory.
Nil 100%

15.  Services of Government or local authority other than support
services provided to business entities are exempted
 What are support services?
 ‘support services’ means infrastructural, operational,
administrative, logistic, marketing or 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 and shall include advertisement and promotion,
construction or works contract, renting of immovable
property, security, testing and analysis.

16. 4.1.7 What is the meaning of “support services” which appears to be a phrase of
wide ambit?
 Thus services which are provided by government in terms of their sovereign right
to business entities, and which are not substitutable in any manner by any private
entity, are not support services e.g. grant of mining or licensing rights or audit of
government entities established by a special law, which are required to be audited
by CAG under section 18 of the Comptroller and Auditor-General’s (Duties,
Powers and Conditions of Service) Act, 1971 (such services are performed by CAG
under the statue and cannot be performed by the business entity themselves and
thus do not constitute support services.)

17.  4.1.8 Will the services provided by Police or
security agencies to PSUs or corporate entities or
sports events held by private entities be taxable?
 Yes. Services provided by government security
agencies are covered by the main portion of the
definition of support service as similar services can
be provided by private entities. In any case it is also
covered by the inclusive portion of the definition.
However the tax will be actually payable on reverse
charge by the recipient.

18. Nature of
Service
Status of
Service
Provider
Status of
Service
Receiver
Percentage of Service Tax Payable
by
Service Provider Service
Receiver
Renting of a
motor vehicle
designed to
carry
passengers
Individual /
HUF /
Partnership
Firm whether
registered or
not, including
AOP located in
the taxable
territory to a
business entity
registered as a
corporate located
in the taxable
territory.
Business entity
registered as a
body corporate.
(i) If service provider
follows abated value
system and the service
is not provided to any
person engaged in
similar line of business
– Nil
(ii) If service provider
does not follow abated
value system and the
service is not provided
to any person engaged
in similar line of
business – 60%
(i) 100%
(ii) 40%

19. Nature of
Service
Status of
Service Provider
Status of Service
Receiver
Percentage of Service Tax
Payable by
Service
Provider
Service
Receiver
Supply of
manpower
for any
purpose or
security
services
Individual / HUF /
Partnership Firm
whether registered or
not, including AOP
located in the taxable
territory to a business
entity registered as a
corporate located in the
taxable territory.
Business entity
registered as a body
corporate.
25% 75%

20. Nature of contract
Valuation
Reimbursement
Intercontinental Consultants
and Technocrats Vs. UOI (2013)
29 STR 9

21. Nature of
Service
Status of
Service Provider
Status of Service
Receiver
Percentage of Service Tax
Payable by
Service
Provider
Service
Receiver
Service
portion in
execution of
works
contract.
Individual / HUF /
Partnership Firm
whether registered or
not, including AOP
located in the taxable
territory to a business
entity registered as a
corporate located in the
taxable territory.
Business entity
registered as a body
corporate.
50% 50%*
*The service
recipient has the
option of
choosing the
valuation
method as per
choice
independent of
the valuation
method adopted
by the provider.

22.  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, repair, maintenance,
renovation, alteration of any moveable or
immovable property or for carrying out any other
similar activity or a part thereof in relation to such
property.

23.  Activity
 Material + Labour
 Position in VAT
 Section 194C
 Past period
 VAT TDS

24. Nature of Service Status of
Service
Provider
Status of
Service
Receiver
Percentage of Service Tax
Payable by
Service
Provider
Service
Receiver
Services of a
person located in a
non-taxable
territory and
received by a
person located in
the taxable
territory.
Any Person Nil 100%
Services provided
or agreed to be
provided by a
director of the
company to the
company*
Individual Company Nil 100%

25. Employee
Independent Director/Non-
executive Director
Reimbursement of expenses

26.  It is to be noted that the tax liability for the service provider and the service
receiver respectively are independent. This is not like a TDS mechanism
and would require discharging of the identified percentage of service tax.
 Assuming, the reverse charge mechanism is applicable in respect of works
contract service provided by a non-corporate body (individual or AOP or
HUF or Partnership firm) and the bill is for Rs.1 lakh, the Company can
calculate value as 40% and the service tax liability of the Querist Company
under reverse charge mechanism would be 50% of 12.36% calculated on
40% of the WCT value.
 Assuming, reverse charge mechanism is applicable in respect of manpower
services or security services provided by a non-corporate body and the bill
is for Rs.1 lakh the service tax liability of the Querist Company under
reverse charge mechanism would be 75% of 12.36% on Rs.1 lakh.

27.  10 Lakh exemption not available
 Payment should be made only by cash and not through
cenvat
 Amount paid can be taken as credit if otherwise eligible and
the challan is the cenvatable document
 Payment by the provider in full may not insulate the receiver
from liability to the extent of the receiver’s portion of tax

28.  If service tax due on transportation of a
consignment has been paid or is payable by a
person liable to pay service tax, service tax
should not be charged for the same amount
from any other person, to avoid double
taxation.

29.  There is no dispute that service in question has suffered tax.
The only dispute is the person who shall pay the service tax.
When the treasury has not been affected by virtue of
collection of service tax from the service provider as is the
case of the Revenue and there is no legal infirmity in the
decision of the learned Commissioner (Appeals) there
cannot be double taxation of same service. But it is fact that
realization of the service tax has been made from the service
provider while the recipient of service of GTA has liability
under the law. Finding no loss of revenue, as has been held
by the learned Commissioner (Appeals), Revenue’s appeal is
dismissed.

30. K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : askvaithi@yahoo.co.uk vaithilegal@yahoo.co.in