Service Tax is a vital part of Indirect Tax Structure of India. In simple words it can be spelled as tax on specified services provided by the Service Provider. Usually the person providing the Services is liable to pay Service tax but here comes an exception, where the service provider is not liable or is partially liable to pay service tax & the recipient has to bear the liability to pay the tax to the Government on behalf the Service Provider. This concept with dual understanding is discussed as follows:
Reverse Charge Mechanism:
- “Reverse charge” of service tax as it is called was encapsulated under Rule 2(1)(d) of the Service Tax Rules, 1994 read with Section 68(2) of the Finance Act, 1994.
- Section 66B of Finance Act, 1994 is charging section for levy of service tax.
- As per Section 68(1) of Finance Act, 1994 the person providing services shall be liable to pay service tax in respect of taxable services rendered. But, Section 68(2) specifies the services where the service recipient shall be liable to pay service tax to the Government.
- Notification 30/2012-ST dated 20th June, 2012 has been issued which supersedes Notification 36/2004-ST dated 31st December, 2004 for the purpose of determining the service tax payable by recipient of service and in some specific cases by both the provider and recipient of the services.
- Notification 30/2012-ST dated 20th June, 2012 is applicable for the services provided on or after 1st July, 2012.
Services Covered by Reverse Charge Mechanism:
Following are the Services covered by Section 68(2) of the Finance Act, 1994 as the services where the service recipient shall be liable to pay service tax entirely or partially:
- Insurance Agent’s Service
- Sponsorship Services
- Goods Transport Services
- Tribunal / Advocate – Legal Services
- Services by a Director
- Support Services from Government
- Renting of Vehicles
- Supply of Manpower
- Security Services
- Services from Non-taxable territory