Recent Changes in Reverse Charge Mechanism

Under new
reverse charge mechanism w.e.f. 1-7-2012, the service receiver is liable to pay
tax, without any benefit of threshold exemption along with service provider also
liable for certain percentage on case to case basis (w.e.f. 1.7.2012 as per
Notification No. 30/2012-ST dated 20.6.2012 as amended by Notifications No.
45/2012-ST dated 7.8.2012 and 10/2014-ST dated 11.7.2014 and Notification No.
7/2015-ST dated 1.3.2015).

Under the
reverse charge mechanism, there is no option to service provider to pay Service
Tax on his own as under normal course. Also, under partial reverse charge, the
law does not provide the option of discharging Service Tax liability either by
service provider or by service receiver. Both are under statutory obligation to
comply with the requirements of reverse charge mechanism as notified.
LIABILITY TO PAY
UNDER REVERSE CHARGE BY SERVICE RECEIVER
Under Partial Reverse Charge (Proportional)
Under full reverse charge (100%)
·     Renting of motor vehicles to carry
passengers 
·     Manpower supply & security
services 
·     (up to 31.03.2015) 
·     Works contracts
·      insurance business services by
agents 
·      Services by recovery agents
·      goods transportation by road 
·      sponsorship 
·      arbitral tribunals 
·      legal services 
·      company body corporate director’s  services 
·      services provided by Government/  local authority excluding specified  services 
·      services provided by persons
located  in non-taxable territory to persons  located in taxable in territory. 
·      Aggregator services (w.e.f.
1.3.2015) 
·      Manpower supply and security  services (w.e.f. 1.4.2015) 
·      Lottery selling / marketing
agent’s  services (w.e.f. 1.4.2015) 
·      Mutual funds agent / distributor
services (w.e.f. 1.4.2015) 
 NEW DEFINITIONS
AGGREGATOR
As per clause
2(aa) of Service Tax Rules 1994, ‘aggregator’ means a person, who owns and
manages a web based software application, and by means of the application and a
communication device, enables a potential customer to connect with persons
providing service of a particular kind under the brand name or trade name of
the aggregator. 
BRAND NAME OR TRADE NAME
As per clause
2(bca) of Service Tax Rules, 1994, ‘brand name or trade name’ means, a brand
name or a trade name, whether registered or not, that is to say, a name or a
mark, such as an invented word or writing, or a symbol, monogram, logo, label,
signature, which is used for the purpose of indicating, or so as to indicate a
connection, in the course of trade, between a service and some person using the
name or mark with or without any indication of the identity of that person. 
AMENDMENTS IN REVERSE CHARGE MECHANISM (VIDE
NOTIFICATION NO. 7/2015-ST DATED 1.3.2015
) 
1. Services
provided by a person involving aggregator in any manner shall be under 100
percent reverse charge mechanism. Aggregator has been defined for this purpose.
(w.e.f. 1.3.2015).
2. Liability to
discharge Service Tax under reverse charge has been shifted from receiver of
service to person liable for paying Service Tax other than the service provider
(w.e.f. 1.3.2015).
3. Manpower
supply and security services have been brought under full reverse charge
instead of partial reverse charge @ 75: 25 basis (w.e.f. 1.4.2015)
 4. Services provided by –
 (i) mutual fund agents, mutual fund
distributors; and
(ii) agents of lottery distributor
 have been brought under reverse charge
consequent to withdrawal of the exemption on such services. Accordingly,
Service Tax in respect of mutual fund agent and mutual fund distributor
services shall be paid by the assets management company or, as the case may be,
by the mutual fund receiving such services. In respect of agents of lottery,
Service Tax shall be paid by the distributor of lottery (w.e.f. 1.4.2015).
 
5. Definition
of person liable to pay Service Tax has been incorporated for aggregator, mutual
fund and lottery distributors/selling agent.
REVERSE CHARGE AT
A GLANCE
 
Description of Service
Liability of (%)
Nature of Person
Service Provider
Service Receiver
Service Provider
Service Receiver
Services
provided by insurance agent to any person carrying on insurance business
0%
100%
Insurance
Company
Services of
mutual fund agent or distributor, to a mutual fund or asset management
company
100%
Asset
management company or mutual fund
Any person
Services of
selling or marketing agent of lottery tickets to a lottery distributor or
selling agent
100%
Selling or
marketing agent
Distributor
or selling agent of lottery
Services
provided by recovery agents
0%
100%
Banking
company/
financial
institution,
non-banking
financial
company
GTA : Freight
payer in specified cases of Consignor/Consignee
0%
100%
Specified
consignor/
consignee
Sponsorship
service
0%
100%
Body
Corporate/ Partnership firm
Service
provided by
0%
100%
Business
Entity
(i) Arbitral
tribunal
(ii)
Individual advocate
(iii) Support
service provided by any government/local authority
Service
provided by director to company/body corporate
Individual
Company
Renting/hiring
any passenger motor vehicle:
Individual/
HUF/Prop/ Partnership
Company/
business entry
(a) On abated
value
0%
100%
-do-
-do-
(b) On Non
abated value
(i) up to
30.9.2014
60%
40%
-do-
-do-
(i) up to
1.10.2014
50%
50%
-do-
-do-
Supply of
manpower or security services
25%
75%
-do-
-do-
Work contract
services
50%
50%
-do-
-do-
Any service
[IMPORT OF SERVICE]
0%
100%
Located in
non-taxable
territory
Located in
taxable territory
Services
involving an aggregator in any manner
100%
Aggregator or
his agent / representative

RECOMMENDED READ  Service Tax E-Filing Date Extended

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