Service Tax Compliance under Reverse Charge - Proprietorship

1.1 When does an individual/proprietorship firm is liable to pay service tax under reverse charge?

An Individual or a proprietorship firm is liable to take service tax registration and pay service tax under reverse charge only if:-

i. It is registered as a dealer of excisable goods under Central Excise Act, 1944; or

ii. It’s a factory registered under or governed by the Factories Act, 1948.

Otherwise, reverse charge is not applicable. It means, when RCM is not applicable, and freight is paid by an individual/proprietorship firm, then the service tax thereon, shall be paid by the GTA itself. So, depending on applicability of RCM, either service provider (GTA) or service receiver shall pay service tax.

1.2 Transportation of Exempted Goods:

No service tax is payable by anyone, if freight is paid for the transportation of the following exempted goods:-

i. agricultural produce and rice;

ii. foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

iii. chemical fertilizer and oilcakes;

iv. newspaper or magazines registered with the Registrar of Newspapers;

v. relief materials meant for victims of natural or man-made disasters, calamities, accidents or mishap; or

vi. defence or military equipments

1.3 Freight paid for low value consignments:

If the amount of freight paid for each consignment is upto Rs. 750/- only, then the same is always exempted from payment of service tax.

If the amount of freight paid for each consignment is between Rs. 750/- and Rs. 1500, then the same is exempted from payment of service tax if the same is being transported in a single goods carriage.

If the amount of freight paid for each consignment is in excess of Rs. 1500/-, then the same is not exempted from payment of service tax.

If an individual/proprietorship firm being a business entity, which had a turnover exceeding Rs. 10 Lacs in the preceding financial year, has paid any amount to an individual advocate or a firm of advocates or arbitral tribunal, for availing legal service, then reverse charge is applicable.

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.

As per law, even if such person pay a meagre amount of say Rs. 500 to an advocate for say filing income tax/sales tax return, then reverse charge is applicable and the liability to pay service tax thereon @ 12.36% is on the service receiver!!!

Note: Payments made to Chartered Accountants, Cost Accountants, Company Secretaries, Consultants, etc for any service including legal service is not covered under reverse charge.

If any payment is made by any person (including proprietorship firm) located in taxable territory, in respect of any taxable service received from a person who is located in a non-taxable territory, full reverse charge is applicable and service tax @ 12.36% is payable by the service recipient.

Author: Manoj Agarwal

Address: Ganpati Campus, Lal Building Road, Rourkela – 769012

Disclaimer: This article is the property of the author and is for information purpose only. No one shall publish, reproduce or use it for any purpose, without the permission of the author. The author shall not be responsible or liable for anything done or omitted to be done on the basis of this article.