[By Shaleen Shah (Partner), VNCA]
The new Service Tax regime based on the “Negative List” has completely changed the way services will be taxed w.e.f. 1-Jul-2012. If an activity meets the characteristics of a “service” it is taxable unless specified in the Negative list, or otherwise exempted by a notification. We have shared with you earlier how to determine whether there is any `service’ vide our Post Is Service Tax applicable to you in the new regime from 1-Jul-2012?
Normally, the person who provides the taxable service is liable to pay service tax. However, on the certain notified services, responsibility has been cast on the service receiver to pay service tax under the `reverse charge’ mechanism. The types of expenses on which the service receiver is liable to pay tax are:
1. Insurance Agent’s Services
2. Services of Goods Transport Agency (GTA) for transport of goods by Road
3. Sponsorship service
4. Services by an Arbitral Tribunal
5. Advocate’s services
6. Certain support services by Government or Local Authority
7. Rent-a-Cab Service (Renting or hiring of passenger vehicle)
8. Manpower Supply Service & Security Agency Service
9. Works Contract Service
10. Fees & Remuneration paid to Directors of a Company
11. Import of services (services received from non-taxable territory)
It is important to note that such “purchase tax” on expenses has to be paid by any person who incurs the aforesaid expenditure irrespective of the nature of business and even if the person is not providing any service. Service Tax Registration will also be necessary. CENVAT Credit of such tax paid will be available subject to the CENVAT Credit Rules.
The following chart will help you determine the amount of Service Tax payable on `reverse charge’, both, as a `Service Provider’ and as a `Service Receiver’.
(i) If all conditions of Col. (1), (2) and (3) are fulfilled (cummulative), `Service Provider’ has to pay tax as per Col (4) and `Service Recipient’ has to pay tax as per Col (5).
(ii) If any condition of Col. (1), (2) or (3) is not fulfilled, the `Service Provider’ has to charge tax as per normal provisions.