The document discusses various aspects of the reverse charge mechanism under service tax in India. It defines reverse charge mechanism and explains when it came into effect. It lists 12 services to which reverse charge applies and whether it is full or partial reverse charge. It addresses issues around point of taxation, CENVAT credit, valuation, exemptions and compliance requirements. It provides an example of the accounting treatment and invoice format under reverse charge mechanism.

1. Reverse Charge Mechanism under Service Tax
Points of
Discussion
Invoice under
Reverse Charge
Mechanism.
Accounting
treatment under
Reverse Charge
Mechanism.
Issues related to
CENVAT Credit.
Issues related to
Point of Taxation
and Place of
Provision of
Service.
5 W’s and 1 H
about Reverse
Charge
Mechanism.
Issues related to
Compliance.
Issues related to
Valuation.
Issues related to
Exemptions.
Who is liable to pay Service Tax
under Reverse Charge
Mechanism?
How the Service Tax
under Reverse Charge
Mechanism is charged?
What is Reverse Charge
Mechanism?
Why there is the need for
Reverse Charge Mechanism?
Where Reverse Charge
Mechanism is
applicable?
When the concept of
Reverse Charge Mechanism
came into effect?

2.  5 W’s and 1 H about Reverse Charge Mechanism under Service Tax.
 What is Reverse Charge Mechanism?
o Generally, service tax is payable by person providing the service [Section 68(1)].
o Section 68(2) of the Finance Act, 1994 makes provision for reverse charge i.e. making
person receiving the service to pay service tax (Tax Shifting).
o Provision can be made that part of the tax will be paid by the service receiver and part by
the service provider i.e. Concept of Partial Reverse Charge.
 When the concept of Reverse Charge Mechanism came into effect?
o With effect from July 1, 2012, a new taxation scheme for the service sector came into
effect, which states that both the service provider and service recipient must pay the
requisite service tax. Prior to this, the liability to pay such tax was only born by either the
service provider or the service recipient.
 Where Reverse Charge Mechanism is applicable?
o Reverse Charge Mechanism is applicable in case of taxable services that are notified by the
Central Government in the notification no. 30/2012-ST.
o There are 12 services under Reverse Charge Mechanism out of which 4 services are
covered under Partial Reverse Charge Mechanism.
 Who is liable to pay Service Tax under Reverse Charge Mechanism?
o Rule 2(1)(d) of the service tax rules, 1994 read with notification no. 30/2012-ST.
o In case of Full Reverse Charge Mechanism, the liability to pay service tax is of the service
recipient, whereas in case of Partial Reverse Charge Mechanism part liability is of service
provider and part is of recipient of service.
o Percentage of service tax payable by service provider and service recipient is different for
different services.
 Why there is the need for Reverse Charge Mechanism?
o The only sole reason for Reverse Charge Mechanism is to prevent the revenue loss to the
government as in the notified services it was difficult to trace the service providers.
 How the Service Tax under Reverse Charge Mechanism is charged?
o Service tax is levied as per section 66B of the Finance Act, 1994 at the rate 12% of the
value determined u/s 67 read with rules made thereunder.
o Service tax is levied on all services other than those specified in the negative list. (Services
to be provided are also covered un sec. 66B)
o Service tax is an indirect tax levied by service provider on the service recipient. Service
provider collects service tax from service receiver and pays to Govt. itself / himself.
o Under Reverse Charge Mechanism, the position becomes reverse. Instead of tax being
paid by service provider, service receiver has to deposit tax in Govt. account.

3. Various aspects about the services notified in the notification 30/2012-ST dated 20-06-2012.
Sr
No.
Description of
Service
Service
Provider
Service
Recipient
Percentage of
Service Tax payable
by
Effective date and
POPS Rule.
Service
Provider
Service
Recipient
1
Service of Arbitral
Tribunal
Arbitral
Tribunal
Any Business
Entity located in
taxable territory
Nil 100%
Not. No. 25/2012-ST,
dated June 20, 2012.
POPS
Rule 8 if not, Rule 3.
Business Entity [Sec 65B(17)] : Business Entity mean any person ordinarily carrying out any activity relating to
industry, commerce or any other business or profession.
2
Service provided
by the Director of
the company to
the said company
Director Said Company Nil 100%
Effective from
August 7, 2012 thru
Not. No. 45/2012-ST,
POPS
Rule 8 if not, Rule 3.
Service tax is payable in on services provided by non – executive, nominee and independent directors.
Managing director, wholetime director and executive directors are not covered.
3
Support Services
by Government or
local authority
excluding,-
(a) Renting of
Immovable
Property [Rule
2(1)(f) of ST
Rules, 1994]
(b) Services
specified u/s
66d(a)(i),(ii)
and (iii)
Govt .or local
authority
Any Business
Entity located in
taxable territory
Nil 100%
Not. No. 30/2012-ST,
dated June 20, 2012.
POPS
Depends upon type
of services rendered.
(No Specific Rule).
4 Goods Transport
Agency by way of
transport of goods
by road in a goods
carriage.
Goods
Transport
Agency
Where person
liable to pay
freight is-
(a) Registered
factory
(b) Registered
society
(c) Co-op.
Society
established
by or undue
any law
(d) Registered
dealer of
excisable
goods
(e) Body
corporate
Nil 100%
Not. No. 33/2004-ST,
dated January 1,
2005. (Amended by
FA 2012)
POPS
Rule 10

4. established
by or undue
any law
(f) Partnership
firm(includi
ng AOP and
LLP)
And such
person is
located in
taxable
territory.
5
Insurance auxiliary
service
Insurance
Agent
Any person
carrying on
insurance
business
Nil 100%
Not. No. 36/2004-ST,
dated 31.12.2004.
(Amended by FA
2102)
POPS
Rule 9(c).
6
Legal Services
[Rule 2(1)(cca) of
ST rules, 1994.
Individual
advocate or
a firm of
advocate
Any business
entity located in
taxable territory
Nil 100%
Not. No. 25/2012-ST,
dated June 20, 2012.
POPS
Rule 8 if not, Rule 3.
7 Sponsorship
Any person
by way of
Sponsorship
Any body
corporate or
partnership firm
(including LLP)
Nil 100%
Not. No. 30/2012-ST
Amended, dated
June 20, 2012.
POPS
Rule 8 if not, Rule 7 if
not, Rule 6.
8 Security Service
Any
Individual or
HUF or
Partnership
firm
(including
LLP and AOP)
Located in
taxable
territory
A business
entity registered
as body
corporate and
located in
taxable territory
25% 75%
Not. No. 30/2012-ST,
dated June 20,2012
POPS
Rule 8 if not, Rule 3.
9
Supply of
manpower
25% 75%
10
Service portion in
execution of
works contract
50% 50%
11
Renting of a motor
vehicle designed
to carry
passengers -
(i) on abated value
(ii) on non- abated
value
Nil 100%
60% 40%
12 Any Service
Person
located
outside
taxable
territory
Person located
within taxable
territory
Nil 100%
POPS
Rule 8 if not, Rule 3.

5.  Issues related to Exemptions/ Valuation
(a) Is Service Recipient liable to pay his share of service tax under reverse charge mechanism when
basic exemption limit of Rs. 10 Lacs is available to service provider under notification no. 33/2012-
ST?
In case the service provider is availing exemption under notification no. 33/2012-ST then he is
not be obliged to pay any tax. However, service recipient shall have to pay service tax to the
extent of his service tax liability under partial reverse charge mechanism.
(b) Whether service receiver can avail SSI exemption limit?
No, the service recipient cannot avail SSI exemption while discharging service tax liability
under reverse charge in terms of notification no. 33/2012-ST.
(c) Service Provider has not availed abatement which is legally available or chooses different valuation
option and prepared the invoice. Can service recipient claim such abatement or chooses different
method of valuation for payment of service tax under reverse charge mechanism?
It is being provided by way of explanation in the notification no. 33/2012-ST that service
provider and service recipient are different and independent of each other. The service
recipient can independently avail or forgo abatement or choose a valuation option, which is
independent of service provider.
 Issues related to compliance
(a) A service recipient is liable to pay service tax under reverse charge mechanism. However, he does
not want to get service tax registration and tells his supplier of service to charge service tax and
pay it to the service tax department. Can he do so?
Section 69(2) made it mandatory to get registration.
(b) If a service provider is registered with the service tax department and now is liable to pay service
tax under reverse charge mechanism, is he required to take new existing registration?
No, registration is required to be done only once, but it has to be intimated that the tax is
being paid as service recipient.
 Issues related to Point of Taxation
What is the point of taxation for service tax liability under reverse charge mechanism?
Generally as per rule 3 of Point of Taxation Rules, 2011, Point of Taxation for service
provider would be earliest of :- Date of invoice or date of receipt of payment. Incase where
invoice is not issued with 30 days from date of receipt of payment or date of completion of
service, whichever is earlier then point of taxation would be earliest of following i.e. date of
receipt of payment or date of completion of service.
However, in case of Reverse Charge Mechanism, date of payment is the point of taxation.
If payment not made within 6 months of the date of invoice, Point of taxation is determined as
per rule 3.

6.  Issues related to CENVAT Credit.
(a) Can CENVAT credit be utilised by service recipient to discharge the liability of service tax under
reverse charge mechanism?
As per Rule 3(4) of CENVAT Credit Rules, 2004, the service recipient cannot use CENVAT credit
balance to pay tax under reverse charge. Such tax is to be paid in cash using GAR-7 challan.
(b) Can CENVAT credit be availed for service tax paid as recipient under reverse charge?
Yes, under reverse charge only payment burden is shifted rest remains the same.
(c) Due to partial reverse charge, a service provider has excess CENVAT credit compared to his
service tax liability. What can service provider do with this credit?
As per rule 5B of the CENVAT Credit Rules, 2004, a service provider notified under section
68(2) of the Finance Act and being unable to utilise the CENVAT Credit availed on inputs and
input services for payment of service tax shall be allowed refund of such unutilised amount.
(d) A portion of the service tax is to be paid by the service provider under reverse charge and the rest
of the service tax is duly charged by the service provider in its invoice. Which is the document on
basis of which CENVAT credit can be taken?
On the basis of invoice for the service provider’s portion and copy of GAR-7 challan for service
recipient’s portion.
 Accounting treatment under Reverse Charge Mechanism.
Accounting Entries – Service Receiver Books
(Example. Service Value – Rs.10000 and SP-25% and SR- 75%)
At the time of payment to service provider:
Expenses A/c. Dr.
ST Input Credit (ST)A/c. Dr.
ST Input Credit (Edu.Cess)A/c. Dr.
ST Input Credit (SHEC)A/c. Dr.
ST Deferred Input Credit(ST)A/c. Dr.
ST Deferred Input Credit(Edu.Cess)A/c. Dr.
ST Deferred Input Credit (SHEC)A/c. Dr.
To Bank A/c.
To ST payable(ST)A/c.
To ST payable(Edu.Cess)A/c.
To ST payable(SHEC)A/c.
10000
300
6
3
900
18
9
10309
900
18
9

7. At the time of payment of Service Tax
(a) Service Tax Payment
ST payable(ST)A/c. Dr.
ST payable(Edu.Cess)A/c. Dr.
ST payable(SHEC)A/c Dr.
To Bank
900
18
9
927
(b) Service Tax eligible CENVAT
ST Input Credit(ST)A/c. Dr.
ST Input Credit(Edu.Cess)A/c. Dr.
ST Input Credit(SHEC)A/c. Dr.
To ST Deferred Input Credit(ST)A/c.
To ST Deferred Input Credit(Edu.Cess) A/c.
To ST Deferred Input Credit(SHEC) A/c .
900
18
9
900
18
9
 Invoice under Reverse Charge Mechanism
All contains of the Rule 4A of Service Tax Rules, 1994 will remain same except for minor difference in
the manner of presentation of service tax liability.
Following is specimen of invoice under reverse charge.
ABC Ltd
Nagpur – 440001
Service Tax Regn No.: Date:
PAN:
Client Name:
Client Address:
Particulars Amount Amount
Manpower Service
Add: Service Tax @12%
E.Cess @2%
S.H.E.Cess @1%
Total
Total Service Tax Amount
Less: Service provider’s share @25%
Service Receiver’s share @75%
Net Amount Payable
-sd-
(Authorised signatory)
1236.00
309.00
10000.00
1200.00
24.00
12.00
11236.00
-927.00927.00
10309.00