As you are aware that, various new service have been added under the New reverse charge mechanism with effective from 1 July 2012 wherein service tax liability shall be discharged both by the service provider & recipient and in some cases wholly by the service recipient. Relevant notification issued by the Central Government is attached herewith for your reference:
Further, there are various issues wherein we would like to address the following:
1. Liability for invoices raised till 30-06-2012: The new reverse charge mechanism is effective from 1-07-2012 and therefore will apply to invoices issued w.e.f 1-07-2012. In respect of invoices issued upto 30-06-2012, the liability to pay service tax will be on the service provider and not with us.
Further, with respect to invoices post 1-07-2012, service tax under reverse charge is payable on payment of invoices. However, if such payments are not made within a period of six months from the date of invoice, the point of taxation get shifted to the date of invoice and therefore service tax along with interest would be required to be paid (ie interest from date of invoices till the date of such payment).
2. If the service provider is exempted being a SSI (turnover less than Rs 10 lakhs), still as a service recipient we would be liable to pay service tax under reverse charge mechanics in respect of invoices and payment release post 1 June 2012.
3. Advance Payments: In case of advance payments made to the vendors, service tax liability should be discharged at the time of making payment of such advances upto the extent of our portion of service tax liability. Also we would be entitled to take cenvat credit of the same immediately.
4. Tax liability when invoice value of service is negotiated after issue of invoice: It may happen that the service provider raises an invoice for eg Rs 100,000 amount and such amount is revised on account of deficiencies /non provision of service, etc. ie Rs 90,000. In such scenarios, following option are possible:
Option 1: To approach the concerned vendor at the earliest and make him understand to not pay service tax on such excess amount (Rs 10,000 in above example), if applicable.
Option 2: Even if service provider has paid service tax on Rs 100,000, service tax should be paid only to the extent of Rs 90,000. Also we would be entitled to take cenvat credit upto the extent of Rs 90,000 only. In respect of excess payment of service tax by the service provider ie ST on Rs 10,000, the same can be adjusted with future payments by the service provider as per the conditions mentioned in Rules 6(4A) and Rule 6(4B) of the Service tax rules.
5. Service tax is to be deposited in cash by the service recipient. Cenvat credit cannot be utilized for making the payment of service tax by the recipient.
6. Availment of Cenvat Credit
- Tax paid on reverse charge by service receiver - On receipt of the invoice upto the extent of liability of service provider (provided payments are made within 3 months from the date of invoice).
- Tax paid to service provider under reverse charge – On payment of such invoices alongwith service tax upto extent of his liability under partial reverse charge
7. Manner of invoicing: Since under reverse charge the service provider is liable to pay Service-tax only on the percentage specified to him, it is submitted that the service provider should be asked to raise invoices reflecting the Service-tax only for such amount. For example, man-power supplier should be asked to raise invoice reflecting Service-tax @25% of 12.36%. The balance Service-tax is then required to be paid by the service receiver.
8. Payment of Service tax: It is advisable that service tax is paid to the government treasury as mentioned below:
- Cenvatable invoices (Partial reverse charge)
To pay service tax separately in respect of invoices where cenvat credit is eligible ie manpower services, advocate/ lawyer services. As per Rule 9, this challan will be treated as sufficient document to avail cenvat credit.
- Cenvatable invoices (Full reverse charge)
To pay service tax separately in respect of invoices where cenvat credit is eligible ie foreign commission etc.
- Cenvatable invoices (output services)
To pay service tax separately in respect of various output services provided by us.
- Non Cenvatable invoices (Full and partial reverse charge)
To pay service tax separately in respect of invoices where cenvat credit is not eligible ie civil construction, rent a cab services etc