By Mojahid Khan, School of Law, KIIT University, Odisha.
INTRODUCTION
Service tax is an indirect tax where provider of taxable service has generally been made responsible for making the payment of service tax to the government. For liveability of service tax there must exist a service provider and service recipient relationship. However in certain exceptional cases, the responsibility has been shifted to the service recipient alone and in some cases both service recipient and service provider have been made liable for payment of service tax for their respective share on the same transaction. According to Section 68 (2) of the Finance Act read with Rule 2 (1) (A) every person providing taxable services i.e. provider of output services is liable to pay service tax. But in special cases service receiver is liable to pay service tax but in special cases service receiver is liable to pay service tax which termed as Reserve Charge mechanism. On the other hand there are instances where both service provider and receiver are liable to pay service tax proportionally which is known as “Partial reserve charge mechanism”.
SERVICES UNDER RESERVE CHARGE MECHANISM
1) In general insurance or life insurance services, the person carrying on the business of insurance is liable and not the insurance agent.
2) In case of services received in India from a place or person outside India, the recipient is liable.
3) Provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road, where the person liable to pay freight is:-
(i) Any factory registered under or governed by the Factories Act, 1948
(ii) Any society registered under the Societies Registration Act, 1860
(iii) Any co-operative society established by or under any law
(iv) Any dealer of excisable goods, who is registered under the Central Excise Act, 1944
(v) Anybody corporate established, by or under any law
(vi) Any partnership firm whether registered or not under any law including association of persons
4) Provided or agreed to be provided by:-
(i) An arbitral tribunal, or
(ii) An individual advocate or a firm of advocates by way of legal services, or
(iii) Government or local authority by way of support services
5) Provided or agreed to be provided by way of sponsorship to anybody corporate or partnership firm located in the taxable territory.
PARTIAL RESERVE CHARGE MECHANISM
With effect from 1.7.2012, a new scheme of taxation is being brought into effect whereby the liability of payment of services tax shall be both on the service provider and the service recipient. The enabling provision has been provided through insertion of proviso to section 68 in The Finance Act, 2012 as per which central government may notify the services and extent of service tax which shall be payable by such persons. Under this clause the central government has issued notification dated 20.06.2012 notifying the description of specified services where the limit has been mentioned as to what extent the service provider is liable to pay service tax and service recipient respectively. While preparing the invoice the service provider in this case should mention the complete information in the same manner and should mention the description and value of taxable service provided or agreed to be provided; and the service tax payable there on.
Following are the services on which such partial reserve change mechanism shall be applicable:-
1) Renting of a motor vehicle designated to carry passengers on Non-abated value to any person who is not engaged in a similar business.
2) Supply of manpower for any purpose,
3) Service portion in execution of a works contract
As we have discussed above that there are instances where tax is paid by the service provider and by the service receiver but under many circumstances both service provider and service receiver partially pay service tax. Following table gives us the information about these types of services and the percentage which has to be paid by the parties there of.
| S. No.
|
Description of Service | Percentage of service tax payable by the person providing services | Percentage of service tax payable by the person receiving services |
| 1 | In respect of services provided or agreed to be provided by an insurance agent to any person carrying on insurance business | Nil | 100% |
| 2 | In respect of services provided or agreed to be provided by a goods transport agency in respect of transportation of goods by road | Nil | 100% |
| 3 | In respect of services provided or agreed to be provided by way of sponsorship | Nil | 100% |
| 4 | In respect of services provided or agreed to be provided by an arbitral tribunal | Nil | 100% |
| 5 | In respect of services provided or agreed to be provided by Individual advocate or a firm of advocates by way of legal services | Nil | 100% |
| 6 | In respect of services provided or agreed to be provided by Government or local authority by way of support services | Nil | 100% |
| 7 | In respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on the abated value to any person who is not engaged in similar kind of business | Nil | 100% |
| 8 | In respect of services provided or agreed to be provided by way of renting of a motor vehicle designed to carry passengers on the non abated value to any person who is not engaged in similar kind of business | 60% | 40% |
| 9 | In respect of services provided or agreed to be provided by way of supply of manpower for any purpose or security services | 25% | 75% |
| 10 | In respect of services provided or agreed to be provided in service portion in execution of works contract | 50% | 50% |
| 11 | In respect of services provided or agreed to be provided by any person who is located in a non- taxable territory and received by any person located in the taxable territory | Nil | 100% |
CONCLUSION
Liability to pay service tax on the reverse charge mechanism is a unique feature of the service tax regime. As under the heads of indirect taxation the service provider pays tax on behalf of recipient, But the proposition of reserve charge can be criticized on the ground that this is against the principle of indirect taxation because under this head any other person other than service provider is burdened with the responsibility of paying service tax. On the other hand this mechanism also has its benefits.