The provisions regarding Reverse Charge Mechanism are encapsulated under Rule 2(1)(d) of the Service Tax Rules, 1994 read with Section 68(2) of the Finance Act, 1994 and Notification No.30/2012-ST dated 20th June, 2012 (as amended). Till 30th June, 2012, some services were subject to full reverse charge, i.e., where the liability to pay full amount of service tax rests on the service recipient. However, with the advent of the negative list regime from 1st July, 2012, many new services were brought within ambit of the Reverse Charge Mechanism and also for the first time, the concept of partial reverse charge was introduced wherein part of service tax was required to be paid by service provider and part by service recipient
Changes by Union Budget, 2014-15 Affecting Service Recipient Obligations
Limited changes have been made in the Service Tax law by Clause 114 appearing in the Chapter V of Finance (No. 2) Act, 2014, which covers the amendments made to the Chapter V of Finance Act, 1994. Further, a set of notifications have also been issued wherein various Rules and earlier notifications have been amended. Out of these changes there are seven significant amendments which directly impact the service recipient obligations under reverse charge mechanism. All such amendments have been made through issue of notifications. Out of these four amendments have come into effect immediately, i.e., from 11th July, 2014 and rest three amendments are effective from 1st October, 2014. All of these amendments are explained as:
- Inclusion of new services under Reverse Charge Mechanism. (comes into effect immediately, i.e., from 11th July, 2014).
- New Exemptions in Goods Transportation Agency (GTA) services (comes into effect immediately, i.e., from 11th July, 2014).
- Condition of availment of CENVAT Credit in case of Goods Transportation Agency (GTA) services (comes into effect immediately, i.e., from 11th July, 2014).
- Change in CENVAT Credit Rules (already effective from 11th July, 2014).
- Change in Point of Taxation Rules (effective from 1st October, 2014)
- Change in % of service tax to be paid by Service provider and recipient in case renting of motor vehicle (effective from 1st October, 2014)
- Service Tax on service portion in Works Contract (effective from 1st October, 2014)
Limited amendments have been made in the Service Tax law by the Finance (No. 2) Act, 2014 and by the issue of set of notifications thereby laying emphasis on stability and continuity in negative list tax regime of taxation of services and in order to to prepare the indirect tax regime for a smooth transition to Goods and Services Tax.
Out of the seven amendments made which affects the service recipient obligations under reverse charge mechanism, four amendments have come into effect immediately, i.e. from 11th July, 2014, and rest three amendments would come in force from 1st October, 2014. All these amendments have been made by issue of notifications. The changes which are to be given affect to only from 1st October, 2014 are in order to coincide it with the Service Tax Return cycle.
It is of utmost importance that we understand the intricacies of the amendments in order to ensure compliance of same as defaults in payments of service tax under reverse charge mechanism are more likely and any delay beyond one year would attract levy of draconian interest rate of 30% per annum, which will come into force on 1st October, 2014 as per the Notification No. 12/2014-ST dated 11th July, 2014.