2. REVERSE CHARGE
INTRODUCTION :-
Meaning :-
In Service Tax law normal liability to charge and deposit service tax is of “Service Provider” but if
“Reverse Charge” is applicable then the liability to charge service tax remains with the service provider
but liability to deposit service tax shifts to “Service Receiver”. It is only for an administrative convenience
of the revenue to collect service tax either fully or partially from the service recipient.
For example If a person “A” from India avails some services from “B” who is in USA, then “B” shall not
charge service tax on his bill (since Indian Service Tax law is not applicable in USA), it becomes the
liability of “A” to calculate service tax on that amount (Indian currency equivalent) and deposit it with
department.
History :-
Reverse charge is not a new concept in the history of Service Tax. In the past also reverse charge was
applicable but only in case of Import of services ,meaning if the person is importing any services then he
has to calculate service tax on the Indian currency equivalent of the invoice value and deposit it with the
Indian government.
From 1st July, 2012 onwards; central government vide Notification No 30/2012-ST as amended by
Notification No 45/2012- ST has widened the scope of services under reverse charge. Now many other
services are also covered under reverse charge.
3. METHODOLOGIES UNDER REVERSE CHARGE
Reverse Charge is applicable in two ways :-
Complete Reverse Charge:- Under this methodology the whole liability of depositing Service
Tax is on service receiver, it means that the service provider shall not receive any tax from the
receiver in fact, all the legal formalities are to be done by the service recipient beginning from
registration to depositing tax, till filing returns.
Partial Reverse Charge:- Under this methodology, the liability of depositing Service Tax is
divided between the service provider and the service receiver, meaning that both have to deposit
their part of Service Tax in the ratio as prescribed by the notification.
Legal Compliances of Reverse Charge Mechanism
• The service receiver has to get himself registered under Service Tax law.
• Any person receiving services specified under reverse charge i.e. service receiver, must get
himself registered with the revenue or amend their existing registration so as to include the
specified services in their registration certificate as recipient of services.
• Service receiver shall have to comply on a timely basis with the provisions under Services Tax
law by way of depositing taxes and furnishing service tax returns .
• Service receiver is required to specify the details of services received under reverse charge in his
return.
4. WHO IS LIABLE TO DEPOSIT TAX?
Sr.
No.
Description of Service Service
Provider
Service
Receiver
Liability
of Service
Provider
Liability of
Service
Receiver
1 Insurance Auxiliary Service
• Insurance Auxiliary Service may be
in respect of general or life insurance
but other than those which are exempt
via notification.
Insurance
Agent
Insurance
Company
Nil 100%
2 Sponsorship Service
• Service Tax is payable on the
sponsorship services provided by any
person to any body corporate or a
partnership firm receiving such
sponsorships. The tax in such a case
shall be discharged by the service
recipient i.e. the body corporate.
Any person Any Body
Corporate
or
Partnership
Firm
located in
taxable
territory
Nil 100%
5. Sr.
No.
Description of Service Service
Provider
Service Receiver Liability of
Service
Provider
Liability of
Service
Receiver
3 Service of Arbitral Tribunal
•Business Entity must have a turnover
of more than rupees ten lakhs in the
preceding financial year.
Arbitral
Tribunal
Business Entity
(includes a
company, firm,
AOP, BOI but
does not include
an individual)
Nil 100%
4 Legal Service
•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.
• Service tax payable on the services
provided by Individual Advocates or
Firms of Advocates shall be
discharged by the Business Entity
receiving such services.
• Business Entity must have a turnover
of more than rupees ten lakhs in the
preceding financial year.
Individual or
Firm of
Advocates
Business Entity
(includes a
company, firm,
AOP, BOI but
does not include
an individual)
Nil 100%
6. S.
No.
Description of Service Service
Provider
Service
Receiver
Liability of
Service
Provider
Liability of
Service
Receiver
5 Any taxable service
• Services of Director to company or body
corporate (entry added w.e.f. 7-8-2012. The
word ‘body corporate’ are added w.e.f. 11-
7-1014)
Director of a
Company
Company
or body
corporate
Nil 100%
6 Support Service by Government or Local
Authority
• Service tax payable on the services provided
by Government in relation to Support
Services* shall be discharged by the Business
Entity receiving such services.
*Support Services means infrastructural,
operational, administrative, logistic, marketing
or any other support of any kind comprising
functions of an entity which may be
outsourced to others including advertisement,
promotion, security, construction, testing &
analysis etc.
Government or
Local
Authority
Business
Entity
(Business
Entity must
have a
turnover of
more than
rupees ten
lakhs in the
preceding
financial
year.)
Nil 100%
7. Sr.
No.
Service Name Service
Provider
Service Receiver Liabilit
y of
Service
Provide
r
Liability of
Service
Receiver
7 Import of Services
• Service Tax payable on the services
provided by any person located in
non-taxable territory to any person
located in taxable territory, shall be
discharged by the person receiving
such services in taxable territory.
located in
non-taxable
territory
located in non-taxable
territory
Nil 100%
8 Transport of goods by road service Goods
Transport
Agency
(one who
issues the
consignmen
t note)
Consignor or consignee
who is (a) factory,
society, registered dealer
of excisable goods,
partnership firm, AOP &
(b) who pays or liable to
pay freight either himself
or through his agent for
transportation.
Nil Tax is payable
on 25% of value
if Cenvat credit
has not been
availed by
service
provider.
Otherwise, ST
is payable on
100% of the
value.
8. Sr.
No.
Description of Service Service
Provider
Service
Receiver
Liability of
Service
Provider
Liability
of Service
Receiver
9 Renting or Hiring of Motor Vehicle to carry Passenger*.
Case 1: Where service provider does not avails
CENVAT Credit
• In this case, service provider can claim abatement of
60% .
Individual
, HUF,
Firm,
AOP
Body
Corporate Or
Company
Nil 100%
Case 2: Where service provider avails CENVAT Credit
• Service provider can not claim abatement.
* Applicable only if Service Receiver is not engaged in
similar line of business.
Individual
, HUF,
Firm,
AOP
Body
Corporate Or
Company
50% 50%
10 Supply of Manpower or Security Service
• Services provided or agreed to be provided by way of
supply of manpower or security service for any purpose
to a company or body corporate shall be proportionately
paid by both service provider and receiver.
• Security service means services in relation to the
security of any property, movable or immovable, or of
any person, in any manner and includes the services of
investigation, detection or verification, of any fact or
activity.
Individual
, HUF,
Firm,
AOP
located in
taxable
territory
Body
Corporate Or
Company
(business
entity
registered as
body
corporate)
25% 75%
9. Sr.
No.
Description of Service Service
Provider
Service
Receiver
Liability of
Service
Provider
Liability of
Service
Receiver
• “Supply of Manpower” means ‘supply of
manpower, temporarily or otherwise, to
another person to work under his
superintendence or control.’
11 Works Contract Services
• Works Contract means a contract where there
should be transfer of property in goods
involved in execution of the contract which is
leviable to tax as sale of goods and such
contract shall be for:-
i. Construction
ii. Erection
iii. Commissioning
iv. Installation
v. Completion
vi. Fitting out
vii. Repair
viii. Maintenance
ix. Renovation
x. Alteration
Individual,
HUF, Firm,
AOP located
in taxable
territory
Body
Corporate
Or Company
(business
entity
registered as
body
corporate)
located in
taxable
territory
50% 50%
