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Reverse charge mechanism service tax

PRATIK KAYAL (business) (352 Points)

06 January 2016

Dear Sir A limited company 1. have taken 1 CAR on hire from one of its employee. The car is on fixed rent of Rs. 13000.00 plus diesel mileage of 1 litre for every 12 km. The employee do not have any kind of tax registrations. Do this comes under the ambit of REVERSE CHARGE MECHANISM. Please advise liability for company. 2. Reverse charge mechanism for GTA. 3. RCM for Manpower supply Agency. The supplier do not pay any kind of taxes and do not have any Service tax registration. Is there any thresh hold limit too of the provider for liability on receiver.

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4 Replies

VISHAL GARG (Learning from life) (106 Points)
Replied 06 January 2016

1.First I would like to introduce your attention to the fact that rent a cab service from employee is a service because this service does not fall under employer-employee relationship otherwise it would have fall under exclusion part of service definition under sec 65B(44). In this case reverse charge is applicable and you have to charge service tax on 40% value of service( Notification no. 30/2012-100% reverse charge on abated value and Notification no.8/2015) and the second thing is you cannot book input for the same( Rule 2(B) of CCR,2004).

2.In case of GTA ,firstly you have to see who is liable to pay freight (whether freight paid builty or freight to be paid).If your liablity is to pay freight and the GTA service provider is an Individual then RCM is applicable. In this case service tax is charged on 25% value of service and input is allowed if same fall under definition of Input for your Company.Other consideration to be kept in mind is Mega Exemption Notification no. 25/2012 point no. 21.

3. In case of manpower supply RCM is applicable if service is provided by Individual/HUF/Firm/ Prop.In this case charge ST at 14%+ 0.5%Swach bharat cess on value os service.

4. Remember there is no threshold limit in case of reverse charge mechanism even if SP is not having turnover of 10 lac.As per recent notification you can't book credit of Swach bharat cess.

Please consider the above points to resolve your queries.

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PRATIK KAYAL (business) (352 Points)
Replied 06 January 2016

Sir

Thank you so very much for your valuable advise. I have got few more queries as follows.

1 . A) How will one make out if Rent A Cab service is on abated value or non abated value.

B) S.No.7(b) of notification No.30/2012-ST as amended by Notification No.10/2014-ST provides that if service provider is raising the bill on full value without claiming abatement, then service receiver is liable for 50% service tax under reverse charge mechanism. Remaining 50% service tax is to be paid by service provider. Is it correct ?

C) If the service provider do not pay service tax or does not comes under its ambit then is there any increase in liability of receiver.

2. What is to be done by receiver if the GTA service provider is an entity other than individual.

Thanking you all in advance.

VISHAL GARG (Learning from life) (106 Points)
Replied 06 January 2016

1.Firstly I am thankful for your words of appreciation, Sir your observation and research is correct but in this case your employee is giving you the service not a vendor who is engaged in renting a cab service.Secondly to avoid compliance of 50% on part of employee it is advised to take 100% RCM on abated value( being this scenario is followed in practical sitution on many of our clients).

2.Even if SP under RCM does not charge ST on his part then also there is no implication on SR for that part.In such a case contact the Vendor and instruct on charging ST on his part.

3.In case of GTA if SP is individual/huf/Properietorship concern liable to pay freight then RCM is applicable. you can read the exact wording below

As per Entry No. A(ii) of N/No.-30/2012, reverse charge is applicable only when taxable service provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is,—

a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

b) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;

c) any co-operative society established by or under any law;

d) any dealer of excisable goods, who is registered under the Central Excise Act, 1944 (1 of 1944) or the rules made there under;

e) any body corporate established, by or under any law; or

f) any partnership firm whether registered or not under any law including association of persons;

So, it can be clearly seen that an individual/proprietorship firm is not covered in the above ‘specified category’. It means, if the freight is paid (either himself or through his agent) by an individual/proprietorship firm or HUF then the service tax thereon shall be paid by the GTA itself.

Rajesh Sharma (Asst Manager-Accounts & Finance) (76 Points)
Replied 13 January 2016

Yes, Service tax is payable on the above said transaction. Being a limited Company, it is your responsibility to charge Service Tax+SBC on the amount for which the Service is availed.

Further being the Service is consumed by you hence you have to accommodate the Service tax