Reverse charge mechanism on gta & job work (works contract)

This query is : Resolved

Ch.Sreenivasa Reddy (Querist)
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09 February 2016 Sir,
I am not clearly understanding how reverse charge mechanism is applicable on GTA and Works contract(Job Contract).Can you please guide me regarding that provisions according to latest amendments applicable.

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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21 February 2016 Goods Transport Agency Services have always been covered by Revere Charge Mechanism - even though the term was coined only by Finance Act 2012 - whereby the service recipient was liable to pay the service tax directly to the Government, thus reliving the service provider of the liability.

By Notification Nos. 33/2004-S.T, 34/2004-S.T, 35/2004-S.T., dated 03.12.2004. the following clarifications were issued:

"4. The Committee has submitted its report on 27th October, 2004. Taking into account the recommendations of the Committee, Notification Nos. 32 to 35/2004 (Service Tax) all dated 3rd December, 2004 have been issued prescribing the modalities for levy and collection of service tax in respect of transport of goods by road. These notifications would be effective from 1st January, 2005.

4.1. Notification no. 32/2004-Service Tax, dated 3rd December, 2004 [now Notification no.1/2006-S.T., dated 1.3.2006] exempts service tax on seventy-five per cent of the gross amount charged in respect of taxable service provided by a goods transport agency to a customer, provided that credit of duty paid on inputs or capital goods [now input services also] used for providing such taxable service is not taken and benefit of Notification No. 12/2003-service tax, dated 20th June, 2003 is not availed of by the goods transport agency.

4.2. Notification No. 33/2004-Service Tax, dated 3rd December, 2004 exempts service tax on taxable service provided by the goods transport agency to a customer, in relation to transport of fruits, vegetables, eggs or milk by road in a goods carriage.

4.3. Notification No. 34/2004-Service Tax, dated 3rd December, 2004 exempts the taxable service provided by a goods transport agency to a customer , from the whole of service tax, in such cases where,-
(i) the gross amount charged on consignments transported in a goods carriage does not exceed rupees on thousand five hundred’ or
(ii) the gross amount charged on an individual consignment transported on a goods carriage does not exceed rupees seven hundred fifty.
For the purpose of this notification, “an individual consignment” would mean all goods transported by a goods transport agency by road in a goods carriage for a consignee.

4.4. Notification No. 35/2004-Service Tax, dated 3rd December, 2004 prescribes that the person making payment towards freight would be liable to pay the service tax, in case the consignor or the consignee of the goods transported in one of the following,-
(i) Factory registered under or governed by the Factories Act;
(ii) Company established by or under the Companies Act;
(iii) Corporation established by or under any law;
(iv) Society registered under Societies Registration Act or similar law;
(v) Co-operative society established by or under any law;
(vi) Dealer of excisable goods, registered under the Central Excise Law; or
(vii) Any body corporate established, or a partnership firm registered, by or under any law.

4.5. In cases other than those mentioned in para 4.4 above, the service tax is to be paid by the Goods transport Agency. The Goods Transport Agencies are required to issue a consignment note (even in cases covered under para 4.4) other than in cases where the service in relation to transport of goods by road is wholly exempted from service tax. The consignment note should be serially numbered and should contain the names of the consignor and consignee, registration number of the goods carriage used for transport of goods, details of goods transported, place of origin and destination and person liable for paying service tax."

The abatement has been reduced to 70% in place of 75% by Finance Act, 2015. The above clarifications should clear your doubts about the RCM on Goods Transport Agency Services.

WORKS CONTRACT means a contract wherein transfer of property in goods involved in the execution of works contract is leviable to tax as sale of goods and the service portion in the execution of works contract is liable to service tax. Thus, the consideration for works contract service shall include both the value of material and the value of service provided during execution of the works contract. The manner for determining the value of service portion of a works contract from the total works contract is given in Rule 2A of the Service Tax (Determination of Value) Rules, 2006 as – ‘the service portion involved in the execution of Original works is 40% of the total works contract and the service portion involved in the execution of works contract other than original works is 70% of the total works contract.

The works contract service is covered under the reverse charge notification no. 30/2012. The liability of service tax under said service shall be paid equally by the contractor/provider of service and the recipient of the service. That is fifty percent of the service tax liability shall be paid by the contractor and the balance 50% shall be paid by the recipient of the service. In short, the service tax shall be paid at 14% (prevailing rate) on 40% or 70% of the total works contract, as the case may be, by the provider of service and the receiver of the service on equal sharing ratio i.e.50:50 ratio.