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Reverse charge

CA Ysil Karunai (Practicising CA) (1133 Points)

16 October 2012

Please Consider the following issue:
A Ltd is engaged in supplying Manpower to B Ltd. A Ltd is new company and is enjoying exemption limit of Rs. 10 lakhs under service tax.
Hence, Invoice raised by A Ltd to B Ltd under Manpower supply service is without charging service tax on the basis of A Ltd was exempted
Query:
1. Whether B Ltd is liable to pay service tax under reverse charge mechanism even though service provider is exempted.
2. IF yes, whether B ltd is liable to pay only 75% or 100% under manpower supply service?

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10 Replies

CA Manish (Job) (5264 Points)
Replied 16 October 2012

Partial Reverse Charge will apply if a supply of manpower service is provided by

i) any individual

ii) HUF

iii) Proprietary firm

iv) partnership firm

v) Association of Persons

located in the taxable territory

i) Any company registered under the Companies Act

ii) business entity registered as body corporate

located in the taxable territory.

There in your case partial reverse charge is not applicable.

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Vikas (CA) (1135 Points)
Replied 16 October 2012

Fully agree with Mr. Manish

Ravi Nallipogu (Student ) (128 Points)
Replied 16 October 2012

Dear ysil karunai,

i agree with Mr .manish

As per new service tax regime under partial reverse charge(motor car hire for carring passengers ,execution of works contract and manpower supply in any manner )apllicability only araises service provider should be other than corporate entity and service receiver should be a body corporate ,if service provider is corporate entity entire service tax liability 100% corporate entity required to pay service receiver need not to pay anything

CA Ysil Karunai (Practicising CA) (1133 Points)
Replied 16 October 2012

Thank you sir,

My Question was whether reverse charge is applicable for Service Receiver when service provider enjoying exemption limit of Rs. 10 lakhs by not charging service tax in his invoice, under such circumstances what is the obligation for service receiver under reverse charge mechanism

CA Manish (Job) (5264 Points)
Replied 16 October 2012

Yes, Receiver has to pay their share of service tax even if provider is not charging service tax due to basic exemption limit.

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Naveen Bhat (Dy.General Manager) (22 Points)
Replied 16 October 2012

The Liability of service provider and service receipient are different and independent of each other.

That means, it is not like TDS where you are deducting tax amount from the total payable amount and deposit the same to the credit of the service provider.

Under reverse charge service receiver is liable to pay the tax as prescribed by the notifications (not on behalf of the provider but on your own account) thus the service receipient (Bltd.) is obligated to pay service tax put upon him by the relevant acts and notifications , irrespective of the taxable status of the service provider.

Hence B Ltd. has to pay ST on reverse charge.

I would also like to add that, the credit of the tax paid by the service receiver under reverse charge would be available to him based on the tax payment challan, (Subject to conditions). Hence please pay ST on reverse charge through a separate challlan, as it will become easier to claim the credit.

CA Manish (Job) (5264 Points)
Replied 16 October 2012

Originally posted by : Naveen Bhat
	The Liability of service provider and service receipient are different and independent of each other. That means, it is not like TDS where you are deducting tax amount from the total payable amount and deposit the same to the credit of the service provider. Under reverse charge service receiver is liable to pay the tax as prescribed by the notifications (not on behalf of the provider but on your own account) thus the service receipient (Bltd.) is obligated to pay service tax put upon him by the relevant acts and notifications , irrespective of the taxable status of the service provider. Hence B Ltd. has to pay ST on reverse charge. I would also like to add that, the credit of the tax paid by the service receiver under reverse charge would be available to him based on the tax payment challan, (Subject to conditions). Hence please pay ST on reverse charge through a separate challlan, as it will become easier to claim the credit.

Please provide supporting to your answer that Receiver has to pay service tax irrespective of status of the provider.

CA Ayush Agarwal (Kolkata-Pune-Mumbai) (27186 Points)
Replied 16 October 2012

Here in This Case, Receipients (b ltd.) Has to pay Service Tax 100%.

Service provider Need not to Pay Any Thing. since Under exemption Limit.

CA Manish (Job) (5264 Points)
Replied 16 October 2012

Read the following explanation by CBEC.

“The liability of the service provider and service recipient are different and independent of each other. Thus, in case the service provider is availing exemption owing to turnover being less than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is required to pay under the partial reverse charge mechanism.”

Therefore Receiver has to pay only its share and not 100%

Souvik Kumar Ghosh (CA Final) (1368 Points)
Replied 18 October 2012

Partial Reverse Charge will apply if a supply of manpower service is provided by

i) any individual ii) HUF iii) Proprietary firm iv) partnership firm v) Association of Persons located in the taxable territory

to i) Any company registered under the Companies Act ii) business entity registered as body corporate located in the taxable territory.

So in this case Reverse Charge mechanism is not applicable. As such the liability to pay service tax is on A ltd, hence B Ltd does not have any service tax liability. Further,since A Ltd is availing the SSP exemption so it is not required to pay service tax.

Let me state further that although the liability of service provider & service receiver is independent of each other but in this case since the Reverse Charge mechanism is not applicable so it does not have any implication.