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Reverse charge mechanism

sagar k.raval (C.A.) (40 Points)

11 July 2012

How to pass book entry in case of Reverse charge mechanism as per new notification as on 20.06.2012

if any one have idea about how the book entry will flow in book of account in case of Reverse charge mechanism

then please share with me.

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34 Replies

Saurabh Maheshwari (B.com,ACA) (5923 Points)
Replied 11 July 2012

Entry in his books-

Service tax(Reverse charge) A/c Dr(where ST Rev chg is to be grouped under Duties & Taxes-Current liab.

To Bank A/c

Exps(Service charge) Dr.

To Service Tax(Reverse Charge)

Conclusion-Such Reverse charge is to be booked as exps and eligible for deduction.

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CA Suri Kota (Assistant Manager @ EY) (955 Points)
Replied 11 July 2012

For Example Man Power Supply (Other Party Individual)

First Entry

Expenses A/c Dr 1000

ST Credit A/c Dr 124

To ST Payable A/c 93

To TDS Payable A/c (194C) 22

To Creditors for Expenses A/c 1009

Second Entry

ST Payable A/c Dr 93

TDS Payable A/c Dr 22

To Bank A/c 115

vishva (article) (25 Points)
Replied 12 July 2012

Can any one help me for reverse charge where and how to show in service tax return ST3? and also on what amount TDS wolud be applicable... on TOTAL SERVICE tax payable or on SERVICE tax payable by the provider only...???

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 12 July 2012

Why all the articles are asking the same question. Any ways, as you must be aware of that the format for ST-3 is to be changed very soon by the department. So wait until the revised format is available on the public domain. TDS is to be deducted on the amount paid and not on the basic value. TDS will be deducted from the total bill value and not by excluding the service tax payable on the same.

rishita (consultant) (23 Points)
Replied 12 July 2012

I have qyueries related to reverse charge mechanism on works contract :

1) If a vendor is providong stationery to an organisation say ABC. Now the said vendor is printing letter heads, pens etc for the organisation on which he prints the brand name of the said organisation i.e he is specially doing something for the organisation rather then only providing stationery. So now as per new amendment on reverse charge mechanism does this vendor fall under works contract service provider? AND also if such vendor is levying only VAT before 1st July, 2012 on his invoices, now will he levy service tax?

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CA Suri Kota (Assistant Manager @ EY) (955 Points)
Replied 12 July 2012

Yea. I missed to show TDS even on ST Credit.

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 13 July 2012

Yes by nature this type of transaction is covered under service tax. Now, the vendor has to follow the schedules as provided under VAT and Service tax applicable to him.

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rishita (consultant) (23 Points)
Replied 13 July 2012

But if the vendor is using his own material i.e organisation is not providing any material to him then will be treated as manufacturer rather then service provider ?

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 13 July 2012

Printing letter heads and pen are not covered under the definition of manufacture, so the question of treating the same as manufacture does not arise. Also, you need to refer to the specific chapter heading of that product to know whether the said activity in relation to the said product is manufacture or not.

rishita (consultant) (23 Points)
Replied 13 July 2012

It means vendor who is specifically printing the brand name for the oraganisation on letter head or pen will fall under works contract and reverse charge mechanism will be applicable on him? i.e he will levy 50% of 12.36% as Service Tax on evrey invoice raised from his end?

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Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 13 July 2012

Yes, provided that the service provider is not a company registered under companies Act, 1956 and is providing material in his personal capacity for the execution of the job.

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Renjith.R.s. (Manager-Accounts) (641 Points)
Replied 16 July 2012

We registered under WCT my doubt regarding Reverse tax charge is

1.Service receiver can adjust ST liability under reverse charge mechanism against input tax Credit or acutal payment is required ?

2.Suppose particular month ST laibility is Rs.100/- under reverse charge method for SR, same month he can calim credit of the same. If yes there is no outflow of fund

CA Suri Kota (Assistant Manager @ EY) (955 Points)
Replied 16 July 2012

1. You can not adjust the Input credit. You need to pay in cash.

2. You can claim in the same month. The restriction is only about the payment as said in above point but not about the credit.

rishita (consultant) (23 Points)
Replied 17 July 2012

I have one more query related to manpower service. Like for an example if vendor provides well trained manpower to handle dogs for security in some organisation, then will this vendor fall under manpower service or the service from said vendor will be treated as proffesional service? Since the vendor is providing well trained manpower who are proffessionally well trained to handle dogs, can this service be treated as proffessional service?