Vide notifications 45 & 46/2012 ST Dated 07.08.2012, services provided by non employee directors to the Companies and security agencies have also been subjected to the levy of service tax under Reverse charge mechanism. In this connection, the following questions are often raised.
1. Does service tax applicable for all directors of a Company?
Whole time directors and Managing Directors of the companies are considered as employees of the company in which they are directors. The definition of service itself excludes services provided by the employees to employers. Hence, there is no service tax in respect of such employee directors. Service tax will apply only in case of non employee directors.
2. Does reverse charge applicable for all service recipients?
In respect of services provided by directors, obviously, the service recipient should be a company established under the Companies Act, like Private Limited Company, Public Limited Company, Government Company. In case of security agency services, the service recipient should be a business entity registered as a body corporate. Only in such cases reverse charge will apply.
3. If the service recipient is a partnership firm, whether reverse charge will apply for security services received by it?
No. Partnership firm is not a body corporate. Similar would be the case in case of other reverse charge liabilities, viz., manpower supply, works contract service and renting of vehicle services. But in case of support services provided by Government, Advocates, reverse charge will apply if the service recipient is “business entity” and they need not be body corporates.
4. What about the liability for the period 1st July 2012 to 7th August 2012?
It may be noted that the services of Directors to the companies and security agency services are normally continuously provided for more than a period of 3 months. Hence, they would be “continuous supply of service” as defined in Point of Taxation Rules, 2011. As per first proviso under Rule 4 of the said Rules, the point of taxation in case of continuous supply of services has been defined as “in case of continuous supply of service where the provision of the whole or part of the service is determined periodically on the completion of an event in terms of a contract, which requires the receiver of service to make any payment to service provider, the date of completion of each such event as specified in the contract shall be deemed to be the date of completion of provision of service”.
For example, if the security agency has already raised their invoice for the services provided by them during July 2012, before 7th August 2012, the service recipient’s liability to make the payment is recognized on the date of invoice and hence the point of taxation shall be the date of such invoice. Hence, if invoice has been raised by the security agency before 7th August 2012, reverse charge will not apply, even if the payment is made by the service recipient after 7th August 2012. But, if the invoice for the services provided from 1st August to 31st August 2012 is raised on 31st August 2012, the date of invoice, i.e. 31st August 2012 would be the point of taxation and hence the service recipient would be liable to make the payment of his portion of service tax liability under reverse charge, though part of the service has been provided before 7th August 2012. In other words, there is no need to split up the liability into pre / post 7th August 2012.
Similar would be the case in respect of services provided by the Directors to the Companies. If the liability to make the payment to the Director is recognized after 7th August 2012,reverse charge will apply and if such liability is recognized by the company before 7th August 2012, reverse charge will not apply.
If the services provided by the directors and security agencies does not qualify as continuous supply of service, then the point of taxation shall first be determined for the services provided. If the point of taxation is on or after 7th August 2012, reverse charge will apply and if the point of taxation is before 7th August 2012, reverse charge will not apply.
5. Whether the Directors have to obtain registration and pay service tax for the month of July 2012?
Yes. But, till 1st July 2012, the services provided by them was not a taxable service.Hence, if the value of other taxable services rendered by them, if any, during the financial year 2011-12 is less than Rs. 10 lakhs, they can claim exemption upto Rs.10 lakhs, during 2012-13 if the value of services provided by them to the companies and other taxable services, if any provided by them, is upto less than Rs.10 lakhs. This exemption is contained in notification 33/2012 ST Dated 20.06.2012 and subject to the conditions prescribed therein.
6. What is the portion of service tax payable under reverse charge?
In case of directors, the entire service tax liability has to be paid by the company. In case of security agencies, 75 % of the service tax liability (9%) shall be paid by the service recipient and 25 % of the service tax liability (3%) shall be paid by the security agencies.
7. Whether the security agencies can pay 3 % service tax in all cases?
No. Reverse charge will apply only if the service recipient is a business entity registered as a body corporate. In case of the services of security agencies are provided to other than business entities or to business entities who are not registered as body corporates, the entire service tax has to be paid by the security agency and no reverse charge will apply.
8. Whether the service tax thus paid under reverse charge can be availed as cenvat credit?
Entitlement to cenvat credit of service tax is to be decided with reference to the definition of input service under the Cenvat Credit Rules, 2004. Normally, the services of Directors and security agencies would be an eligible input service for a manufacturer and a service provider. Further, security service is specifically covered in the definition of input service.
Hence, cenvat credit would normally be entitled subject to other conditions under the Cenvat Credit Rules, 2004.
9. What is the document based on which cenvat credit can be taken?
In case of service tax paid directly by the service recipient under reverse charge, the challan evidencing payment of service tax by the service recipient would be the relevant document to avail cenvat credit. In respect of the portion of service tax paid by the security agency, the invoice issued by the security would be the relevant document.
10.Whether the directors have to issue an invoice?
As per the provisions of the Service Tax Rules, 1994 every service provider must raise an invoice within 30 days of completion of the service.
11. Under what code this services Tax on these services are to be deposited by services recipient.
From 01.07.2012 ,one Accounting code head for all the services has been notified. so these accounting code is to be used to deposit service tax for all type of services whether deposited under reverse charge by service recipient or by service provider.(read details here)
(By G. Natarajan, Advocate, Swamy Associates)
Company has taken motor cars on hire basis for their staff. The cars are hired from individual service provider and no servcice tax is collected as the total service income P/A is less than 10 lacs. Due to the changes in service tax applicability from 01/07/2012 is this service is taxable in the hands of service receiver or service provider? Please advise.
ReplyDeleteIf services provided in not covered as per detail given below. Company is liable to pay service tax under reverse charge even service provider turnover is less than 10 lakh.
DeleteNegative list have a entry about contract carriage
23. Transport of passengers, with or without accompanied belongings, by -
(a) ......
(b) a contract carriage for the transportation of passengers, excluding tourism, conducted tour, charter or hire; or
Read more: http://www.simpletaxindia.net/2012/06/negative-list-of-services-revised.html#ixzz23mHf1ZNt
Yes, It is taxable as per notification No. 30/2012 in the hands of Service Receiver.
DeleteRanveer Singh
What is the due date of payment of service tax in case of reverse charge for directors services and security services in case payment is made to both of them after a period of say 8 or 9 months.
ReplyDeleteWith regards,
Neha
As the service tax on director services is applicable from 01.07.2012 . so service tax is payable only for a period 01.07.2012 to end date. As the payment is to be made now ,service tax should be paid under reverse charge now as explained in point 4 above.
DeleteIn case of security service please provide the details when bill was raised
Dear Raja Babuji,
ReplyDeleteThnx for your reply.
But pls appreciate My question is not about the date from which service tax is applicable under reverse charge.
My query is -
It is the general practice that payment for security services are made after a gap of around 3 to 4 months after receipt of invoice. Here My question is suppose the payment of security charges and directors commission for the month of sept 2012 are made by my company in the month of Feb 2013.
Then do i need to deposit Service tax on both the services before making payment to service provider (i.e. director / security services provider) in feb 2013.
What is the due date for payment of Service tax of my company in this case.
With Regards/Neha
As per amended Rule 7 of Point of Taxation of Rules (PoTR), Point of Taxation (PoT) in reverse charge is required to be computed with reference to the date on which payment is made. Therefore, ST liability will have to be discharged by Service Recipient(SR) by 5th of the next month / quarter in which the payment has been made to Service Provider(SP).
DeleteHowever proviso to the said Rule 7 also provides that if the SP is not paid within the period of six months, PoT is to be determined as if Rule 7 does not exist. In that case, Rule 3 of PoTR will apply and due date of payment of ST will be applicable retrospectively.
So from the above ,if payment has been made to SP within 6 months from date of invoice then point of taxation is date of payment by SR and accordingly service tax is to be deposit by SR in 5th/6th of next month in which payment has been made to SP.
However ,if payment to SP has been made after 6 month from invoice date then POT is as per rule 3 i.e invoice date . so service tax due from 5th/6th of next month in which invoice has been raised by service provider and accordingly service tax has to be paid along with interest.
Now ,specific to your query ,make sure that payment is being made with in 6 month.
or
If delay more than 6 months expected ,deposit service tax on presentation of bill by SP even payment to SP has not been made
More specific answer to your query is as under.
DeleteFrom September 2012 to FEB 2012 period is 5 Month ,so POT remains date of payment .
Due date in above case will be 5th/6th of March 2013.
Due date is to be determined when once ascertain the liability...
DeleteThe answer is based on the payment. Hnece the date to be read as 6th March 2013
Is it necessary for a Security Agenecy to segregate the ST liability on bill as "Payable by receipient " and "Payable by Provider " . In case if it is not segregated then also service receiver is responsible to pay 75%
ReplyDeleteService Receiver remains liable to deposit service tax even if bill is silent about it . Further it is better if you mention that 75 % is payable by service provider in the bill itsel.
DeleteDEAR ALL
ReplyDeleteSHOULD DIRECTOR LIABLE TO TAKE SERVICE TAX REGISTRATION. EVEN IF HIS REMUNERATION IS LESS THAN RS. 9 LAKHS. IF SO, THEN, PLEASE GIVE ME REFERENCE FROM ACT.
As the reverse charge is applicable on Service receiver ,directors are not liable to register for service tax .
DeleteService Tax is NOT APPLIACBLE where there is an Employer -Employee Relationship....Hence Reverse Charge MEchanism Principle does not apply...
DeleteThx
Thanks a lot. :)
ReplyDeleteSir,
ReplyDeleteAs per provision of Sec 309-311 of Companies Act 1956 non executive directors are paid sitting fees which form part of their remunaration, in case the director only charge the sitting fees for attaining a meeting then whether service tax is chargeable on the bill.
Give your opinion on this regard.
If No employer /employee relation between non executive director with company then sitting fees is liable to be charged under service tax. if employer employee relation exist then it is out of ambit of service tax.
DeleteIn case of Security Agency , How the Entry will be passed in books of Service Reciepnt and Service provider . Please give your advice . How the Cenvat Credit ie Sevice Recievable will be booked
ReplyDeleteplease help me I am runing a recruitment firm which helps company's find prospective employees & we are paid charges for this.We are not manpower contractor as we just need to provide right candidates which are hired on company's payroll & we are paid hiring charges.I want to ask do we also come under service tax reverse charge i.e we need to deposit 25% of 12.36 & 75% will be deposited by reciever of service .
ReplyDeleteAns : You are not covered under reverse charge as recruitment agency service is not covered under manpower at all. Nothing to worry
RAJINDER SINGH HB CHANDIGARH
ReplyDeleteSIR,
WE MAKE SERVICE TAX PAYMENT TO A COMNTRACTOR @12.36%.KINDLY SHOW US CALCUATION PATH OF 25%AND 75% AND IN WHICH CODE WE HAVE TO
DEPOSIT THE SAID SERVICE TAX I.E.75%
Please read the detail in the link give below .Or ask query with more details
Deletehttp://www.simpletaxindia.net/2012/06/new-services-under-reverse-charge-in.html
If a taxi is hired by an employee or a Director of a Company and he settles the bill to the travel agency and claims reimbursement from his Company will such expense be liable for Service Tax under reverse charge mechanism?
ReplyDeleteThe reverse charge of Service tax in respect of services provided or agreed to be provided by way of renting or hiring any motor vehicle designed to carry passenger is divided in 2 parts "on abated value" and "non abated value".
ReplyDeleteCan someone throw more light on this? When is it abated and when non abated value? What is the classification nomenclature for the two?
As per notification 26/2010 dated 20.06.2012 abatement at 60 % on such services is allowed . Means if gross bill is 100 then service tax is applicable on 40% only.
DeleteSo if service provider raise bill for 100(non abated value) then service tax payable will be
100 X 40 % 12.36%=4.944
if Bill is raised after abatement 100-60=40 Rs
then service tax payable under reverse charge =40*12.36=4.944
So in both case ,tax payable under reverse charge remains same.
http://www.simpletaxindia.net/2012/06/abatement-rate-in-services-tax-amended.html
Thanks for the prompt response. Just to reconfirm that I have understood correctly it means that if Service Provider is not collecting Service Tax then the Service Receiver has to pay 100% of the service tax which is 12.36% on 40% of the bill value. Am I right?
ReplyDeleteYes, But If Service receiver is responsible to pay the tax then he has to pay the same . so it is not important that service provider has demanded service tax or not
Deletehttp://www.simpletaxindia.net/2012/06/new-services-under-reverse-charge-in.html
If the Security Service is provided by a Corporate Company to a Corporate company, would the reverse charge mechanism will apply or Corporate Security Co. would charge full service tax i.e. 12.36%
ReplyDeleteThanks
Harish Dua
Dear Harish ,
DeleteIn such case(service provider is company) reverse charge on security services is not applicable.
Thanks a lot sir
DeleteSir, we are the service provider and attending the consolidated work of CFS's with the halp of labour and machines also. And our billing to CFS is on container basis - we are not providing them particular man power. Our contract is to attend the carting, stuffing, de-stuffing and loading from CFS. So whether we require to submit them invoices as per reverse charge mechanism or we should charge them on full activity and subseqently we are paying to Govt. please guide / clarify to enable us to submit invoices. Best regards - Harendra karia
ReplyDeletePlease provide your status individual ,firm or company etc
Deletesir, we are registered partnership firm.
DeleteAccording to your status ,reverse charge is applicable if service receiver is body corporate , But one more thing you have to decide is that are you covered under manpower supplier as per your contract terms.
DeleteAs per revised service tax rules ,
Manpower means
(g) “supply of manpower” means supply of manpower, temporarily or otherwise, to another person to work under his superintendence or control.’
so if the superintendence or control of manpower is with you then it is not covered under reverse charge ,if superintendence or control is with CFS then it is covered under manpower.
Our view
Suppose you have a work of house keeping has been allotted to you and CFS has defined in work order ,what is to do under this work order and not demanded a persons/manpower do this work,
To execute this work order you have engaged workers,then this is not covered under man power contract.
we are manpower supply agecy, so how new change affect us & if turnover is less then 10 lakh what will be service tax rate for billing
ReplyDeleteIf your turnover is less than 10 lakh and it was less than 10 lakh in last year also . Then you may not charge any service tax in the invoice.
DeleteIf you decide so, then no need to show any service tax in the bill.
Service receiver will calculate his part and pay his part directly.
Dear Sir
ReplyDeleteSpose i am a security service provider and service reciever are heppy to pay 100% service tax @ 12.63% of total billing amount in that case what i have to do
BABU RAM
stay happy...
ReplyDeleteDear Sir,
ReplyDeleteWe are working for a reputed concern(Principal Employer - PE) as contractor and we are a limited company. We raise service tax bill @12.36% to our PE.
Now, we outsource the work to our subcontractor who finishes the work for us by rendering manpower. Basically our subcontractors are less educated when it come to TAX point of view.
IS reverse charge mechanism applicable to us and subcontractor,
If YES, in which way it is going to be useful to me and my subcontractor.
I am paying the entire service tax to my PE, why should i pay Service tax for my customer and take refund the next month?
A Director is providing employees of his firm to Pvt Ltd co in
ReplyDeletewhich he is director will it be a manpower service and taxable under revers charge system of service tax or not
A director providing employees of his firm to pvt ltd co
ReplyDeleteas office staff whether such supply of service taxable as manpower service under reverse charge or not.