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REVERSE CHARGE: PERSON LIABLE FOR PAYMENT OF ST – SEC 68 1.

What would be the treatment in respect of a service which is subject to normal charge:

.

1)

SP provided taxable service to SR. But failed to charge ST from SR. • SP remains liable to pay ST to CG. • Failure charge/realized ST from SR will not relieve him of his ST liability to CG. • However, SP can claim that ‘payment received’ as cum-ST payment.

2)

SP provided service to SR. SP considered his service to be non-taxable and thus, agreed consideration consists of only ‘service charges’ Service contract was silent as to ST. Subsequently, it was found that service was taxable and ST payable. Whether SP has legal civil right to recover this ST from SR though service contract is silent as to ST. • BHAGWATI SECURITY SERVICES – 2013- ALLAHBAD HC: Since ST is an indirect tax and is a statutory liability, hence, even if agreement between the parties is silent as to levy of ST, the SP may bring a civil suit before Court to seek collection of ST from the SR. It is so because, the SP is merely a collecting agency who collects ST from recipient and pays it to the Government. SATYA DEVELOPERS PVT LTD. Vs PEAREY LAL BHAWAN ASSOCIATION- 2015-SC • PLB rented its property to SDP in year 2006 for a period of 10 years. • In 2007, this service becomes subjected to ST for the first time. • In 2009, fresh lease deed executed, which provided that ‘any tax on lease shall be payable by leasee. • For period 2007-2009, PLB demanded ST from SDP. Held: • Sec 64-A of Sale of Goods Act empowers seller to recover new levy/increase of excise / customs from buyer. This section is applicable to ST also thus SP is empowered to recover new levy/ increase of ST from SR. .

Sec 64-A : in contract of sale, amount of increased or decreased taxes to be added or deducted (1) In the event of any duty of customs or excise or tax on any goods being IMPOSED, INCREASED, DECREASED or REMITTED (*Exempted)- after the making of any contract for the sale of such goods without stipulation as to the payment of duty or tax where duty or tax was not chargeable at the time of the making of the contract, or for the sale of such goods duty-paid or tax-paid where duty or tax was chargeable at the time,(a) if such imposition or increase so takes effect that the duty or tax or increased duty or tax, as the case may be, or any part thereof, is paid, the seller may ADD so much to the contract price as will be equivalent to the amount paid in respect of such duty or tax or increase of duty or tax, and he shall be entitled to be paid and to sue for and recover such addition, and (b) if such decrease or remission so takes effect that the decreased duty or tax only or no duty or tax, as the case may be, is paid, the buyer may DEDUCT so much from the contract price as will be equivalent to the decrease of duty or tax or remitted duty or tax, and he shall not be liable to pay, or be sued for or in respect of, such deduction.

•

3)

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(2) The provision of sub-section (1) apply to the following taxes, namely :(a) an duty of customs or excise on goods; (b) any tax on the sale or purchase of goods (VAT).

PLB is eligible to recover ST from SDPL.

SP provided service to SR. SP considered his service to be taxable and thus, agreed consideration consists of ‘service charges’ and ST element. The consideration was recovered and ST paid to the CG. Subsequently, it was found that service was non-taxable and ST was not payable. Whether SP can claim refund of ST wrongly paid by him? • SP has wrongly paid ST. • SP can file refund claim in terms of Sec 83 of FA, 1994 read with Sec 11-B of CEA, 1944. • Refund would be admissible but it will not be given to SP because of ‘doctrine of unjust enrichment’. Rather the amount shall be credit to the Consumer Welfare Fund. However, in case SP refunds the money (the ST element) to SR, either by way of cash or by issuance of credit note, then, refund shall be given to the SP. Whether SR is legally entitled to file ‘refund claim’, in case SP is not refunding him the ST element? • SR can file refund claim in terms of Sec 83 of FA, 1994 read with Sec 11-B of CEA, 1944. • Refund would be admissible and it will be given to SR

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However, if credit has been availed of by SR, then he shall not be eligible to claim refund (as he has already been benefited by equivalent credit).

SP provided service to SR. SP considered his service to be taxable and thus, agreed consideration consists of ‘service charges’ and ST element. The consideration was recovered on 2th June, 2016. ST to be paid to the CG on due date (6th July, 2016). Before due date (say, on 20th June 2016), it was found that service was non-taxable and ST was not payable. Whether SP can retain the ST wrongly collected from SP? Whether Department can demand ST from SP, which though not payable but has been collected from SR? Sec. 73A covers the amounts collected by any person in the guise of service tax. • Service tax collected has to be paid to the credit of the CG in the following cases— a) Person liable to pay service tax has collected service tax in excess assessed or determined and paid on any taxable service. • A show cause notice (SCN) to be served by the CEO, in case the service tax not so deposited with the CG. • Such person, to whom SCN is served, may make a representation to the CEO after receiving the notice. • The CEO shall consider the said representation and then determine the amount due from such person. Such amount will however, not exceed the amount specified in the notice. • Thereupon, such person shall pay the amount so determined. Considering provisions of Sec 73-A, the understanding of SP as to his not been responsible for payment of ST to CG is not correct. Continuing with the above, can SR claim refund of service tax paid by him to SP, which has been paid in terms of Sec. 73-A? Such amounts paid in terms of Sec. 73A shall be adjusted against the service tax payable by the person on finalization of assessment or any other proceeding for determination of service tax relating to the taxable service. Surplus amount : Where any surplus amount is left after the adjustment, such amount shall be : (i) credited to the Consumer Welfare Fund, or (ii) refunded to the person who has borne the incidence of such amount Time-limit for filing refund claim : Such person (i.e., the person who has borne the service tax) may make an application with 6 months from the date of the public notice to be issued by the CEO for the refund of such surplus amount.

2.

What would be the treatment in respect of a service which is subject to ‘full reverse charge’:

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1)

SP provided taxable service to SR. Service was subject to ‘full reverse charge’ and thus, SR was liable to pay ST to CG. However, SP charged ST in his invoice, collect it from SR and paid it to the CG. SR was person liable to pay ST to the CG. Since he has not paid ST to CG, CEO issued SCN u/Sec 73 asking him why ST shall not be recovered from him, alongwith associated interest as specified u/Sec 75 and penalty as specified u/Sec 76 / 78 of FA, 1994. Whether Department is correct in initiating recovery action against SR even when SR has paid ST to the SP who has paid ST to the CG? • Disputed Issue. • In some cases, Courts have held that if situation is ‘revenue neutral’, then Department shall not insist on payment by SR.

2)

The assessee received some taxable services from Ramesh. A formal contract was entered into between them. As per terms of the contract, Ramesh had to bear all the taxes, duties and other liabilities in connection with discharge of his obligations. Subsequently, liability to pay service tax in case of such taxable services was shifted from service provider to service receiver retrospectively, owing to an amendment in law. Therefore, the assessee deducted service tax in the bills raised by Ramesh. Ramesh refused to accept the said deduction saying that the contractual clause could not alter the liability placed on the service recipient (i.e. the assessee) by law. Discuss, whether the contention of Ramesh stands to reason, with help of a decided case law, if any. [Nov 2014- 3 Marks] [May 2013- 3 marks] The facts of the case are similar to that in RASHTRIYAISPAT NIGAM LTD- 2012-SC, where it was held that (a) in case a recipient of service is the person liable for payment of ST, such recipient can enter into contract with service provider that burden of any tax under the contract would be borne by service provider. (b) The provisions concerning ST are relevant between the assessee and the tax authorities; therefore there is nothing in law which prevent the parties from entering into agreement regarding burden of tax arising under contract. Hence, the contention of the contractor doesn’t stand to reason. In fact, the deduction made by the Appellant is fairly as per the contract and cannot be denied by the contractor.

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**Note: Statutory Obligations vs Contractual Obligations 1) Statutory Obligation: SR shall be liable to pay ST to CG: SR has to comply with this statutory provision; 2)

Contractual Obligation: SP shall bear the burden of ST component out of mutually agreed consideration: Any such provision/understanding can be entered between SP and SR. Such contractual obligations shall prevail.

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3.

Under reverse charge mechanism, which services have been notified, where service tax is jointly payable by the both, service provider and service receiver? The following services have been notified under reverse change mechanism where service tax is jointly payable by both, service provider and service receiver: i. Service of renting of Motor Vehicle designed for carrying passenger when such service is provided to a person who is not engaged in similar line of business (and where Service provider is not opting for abatement/exemption benefit of E/N 26/2012) ii. Service of execution of works contract. It shall be noted that in respect of aforesaid service, partial reverse charge mechanism shall be applicable only when status of service provider is that of individual, HUF or partnership firm including AOP, located in the taxable territory and status of service receiver is a business entity registered as body corporate, located in the taxable territory.

FULL REVERSE CHARGE – SEC 68 (1) (A) Any taxable service provided by SP located in Non-Taxable Territory

4.

Whether ST can be demanded from a person located outside India in respect of service provided in India to a person located in India? No. Service provided in India attracts ST levy even if service provider is located outside India. But such levy shall be collected from the service recipient in India. JACOBS ENGINEERING UK LTD – 2015- KARNATAKA HC Assessee was situated in United Kingdom and having no office or branch in India - Assessee provided consultancy services to MCFL of India Department argued that since officers of assessee-company had visited MCFL's Plant at Mangalore (India), hence, assessee was liable to service tax in India Held: • A foreign company having no business establishment or operations in India, cannot be asked to pay service tax on services provided by it to Indian recipient merely because of a visit of its officers in India in course of providing service. Author: POPS of consultancy Service shall be determined as per Rule 3 of POPS Rules, 2012. In terms of Rule 3, POPS = Location of SR = Taxable Territory -- thus, such service attracts ST levy.

(B) Any taxable service provided by involving an AGGREGATROR Author: Aggregator doesn't own assets (taxis, trucks, mini-trucks etc) and just connect consumers (service receivers) with owners (service providers) through some web based application.

5.

Who is liable to pay service tax in respect of any taxable service provided involving aggregator? What shall be the taxable value of such service in hands of aggregator? Aggregator under whole service name the service has been provided (e.g., OLA cabs) shall be liable to pay service tax. . He shall compute taxable value in terms of Sec 67 read with Service Tax Valuation Rules, 2006. Further, abatement benefit of E/N 26/2012, if applicable, can also be claimed.

6.

A taxable service is being provided involving aggregator. The aggregator does not have any place of business in India. Who shall be liable to pay ST in such situation?

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In such scenario, if aggregator is having some representative in India, then such representative in India shall be liable to pay ST. Further, if aggregator is not even having any representative in India, then aggregator shall appoint someone who shall be liable to pay ST. 7.

Besides from taxi services (transportation of passenger), what are the other areas of service, where aggregator model is applicable? Aggregator may be involved in any taxable service. In general, aggregators are commonly visible under following service sectors: a) Passenger transportation service (e.g., OLA Cabs, Uber Cabs, Cityflo) b) Beauty treatment services (e.g., UrbanClap, Housejoy) c) Photography Services (e.g., Flatpeeper) d) Goods transportation services (e.g., ThePoter, GoGo Truck) e) Hotel / Lodging services (e.g., OYO Rooms, Zip Rooms – that is aggregating non-branded budget hotels)

8.

Will the provisions under aggregator model is applicable where service provider himself develops an application to render his services (e.g., Meru Cabs providing taxi services in its own fleet of cars driven by its own drivers, but booking done by receivers through mobile application of Meru Cab)? The pre-condition for a transaction to be covered under provision of ‘aggregator’ is that service should be provided by the service provider under the brand name of aggregator. If service provider, provides services in his own brand name, even though through a web based application, it is not service provided under aggregator model and this provisions are not applicable. In such a situation, service provider has liability to pay service tax and the provisions of ‘reverse charge mechanism’ are not applicable. Therefore, service provider can claim small service provider exemption under notification no. 33/2012-ST.

9.

Whether persons who arrange booking of cinema tickets (Eg. : ticketnew.com), concert tickets, amusement park tickets, through web based portal can also be termed as ‘aggregator’? No. They are not aggregator as service provider (e.g. PVR Cinema Hall) is not providing service under brand name of such person (e.g., bookmyshow.com, ticketnew.com etc). Such persons are intermediary simplicitor. . It shall, however, be noted that they will be liable for payment of ST in respect of any service charges recovered by them from customers and / or commission received by them from person selling the tickets / shares etc.

. 10. Whether online retail websites viz. Flipkart, Snapdeal etc. are also ‘aggregator’ who has been made liable to ST? No. It should be noted that this provision covers within its ambit only an aggregator of services. Therefore, online retail websites which deal are not aggregator who has been made liable to ST.. Author: However, Flipkart / snapdeal etc. will definitely qualify as ‘intermediary’ under ST, since they are facilitating transaction of supply of goods. In their capacity of intermediary, they shall be liable to pay ST on commission earned by them.

(C) GTA Service

 11. Whether a manufacturer transporting goods to their dealer through its own transportation on chargeable basis can be termed as ‘Goods transport agency’ providing taxable services? Technical Guide On TRANSPORTATION [ICAI- Jan 2015] • •

Sec 65-B (26) of the Finance Act, 1994 interprets goods transport agency as "Goods Transport AGENCY" means any person who provides service in relation to transport of goods by road and issues consignment note, by whatever name called. Transportation of goods by road except by way of Goods Transport Agency and Courier is covered in the negative list.

•

Service tax is on ‘Goods Transport Agency’ and not on the ‘Goods Transport Operator’. o o

In a simplest way ‘agent’ means acting on behalf of another. Whenever goods are purchased by any person which are required to be delivered to the premises of the customer, then the same can be arranged in under mentioned ways: 
  Seller or Consignor delivers goods in the truck owned by them: In such case, there is no ‘agency’ involved; hence, there will not be any service tax, even if later on Consignor recovers charges for services provided by it. The word 'agency' in GTA should be construed given the definition of agent in Section 182 of the Indian Contract Act, 1872, as per which an 'agent' is a "person employed to do any act for another or to represent another in dealings with the third persons". When the aspect of ‘agency’ is absent in case where a truck owner or operator gives a truck without an agent being go-between, there can be no tax. [From para 6.6 of CCE & C, GUNTUR VERSUS KANAKA DURGA AGRO OIL PRODUCTS PVT. LTD. [2009] 22 STT 435 (BANG. - CESTAT)]

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

Buyer agrees to take goods in its truck, in such a case, the buyer provides services to itself. Thus, no question of ST arises.



Seller arranges for transport of goods by arranging truck. In such a case, the truck owner carries the goods from one destination to another, but it would be on behalf of seller. Thus, truck operator acts as an agent of seller. In such a situation, there will be service tax as the services are provided by ‘Goods Transport Agency’

In Para 149 of Budget 2004 of the Union Finance Minister's speech, Hon’ Finance Minister has clarified that there is no intention to levy service tax on truck owners or truck operators.  Thus, only when element of ‘agency’ is present, there will be service tax on transport of goods by road services provided by Goods Transport Agency.

GTA has been defined u/Sec 65-B to mean any person who provides services in relation to transport of goods by road and issues consignment note, by whatever name called. Manufacturer transporting in his own transportation is not acting as agent for anyone. No agency being involved, such manufacturer cannot be termed as ‘Goods Transport Agency’ and thus, his service of transportation of goods by road shall fall into negative list and thus, not chargeable to ST. Author: Transportation of goods by road (other than that of GTA and courier) falls into negative list. • All of the above cases of transportation of goods by road will fall into negative list and will not attract ST.

 12. When a GTA can be liable to pay ST as service provider? GTA as provider of taxable shall be liable to pay ST under following 2 situations: 1) Where the person paying freight does not fall into specified category of persons; 2) When the person paying freight is located in a non-taxable territory;  13. Determine who shall be liable to pay ST under following situations: (a) KGB Infrastructures Limited, located in Maharastra is into the business of construction and purchased bricks from JSK, a partnership firm. Bricks are supplied in a truck and the freight for the same is paid by KGB Infrastructures Limited. The amount of freight is Rs 6000/-. • In such case, the person who is liable to pay freight is KGB Infrastructures Limited. As KGB Infrastructures Limited falls into the category of one of the specified persons as per Rule 2(1)(d) of Service Tax Rules, 1994, hence, the recipient of service is liable to pay service tax. • The abatement of 70% is available in terms of Notification No 26/2012. Thus, service tax is payable at 14% (after claiming abatement of 70%). [ST liability = (6,000 * 30%) * 14% = Rs 252] • No SSP Exemption will be available to the recipient of service. (b) KGB Infrastructures Limited, located in Maharastra is into the business of construction and purchased bricks from JSK, a partnership firm. Bricks are supplied in a truck and the freight for the same is paid by JSK, a partnership firm. The amount of freight is ` 6000/-. • In such case, the person who is liable to pay freight is JSK, a partnership firm. As JSK falls into the category of one of the specified persons as per Rule 2(1)(d) of Service Tax Rules, 1994, hence, JSK is liable to pay ST. It does not matter whether partnership is registered or it is unregistered. • The abatement of 70% is available in terms of Notification No 26/2012. Thus, service tax is payable at 14% (after claiming abatement of 70%). [ST liability = (6,000 * 30%) * 14% = Rs 252] • No SSP Exemption will be available to the recipient of service. In case (b), Subsequently, if M/s JSK, a partnership firm recovers the freight from KGB Infrastructures Limited by charging the same in his invoice, in such case, the freight has been paid to the truck owner by JSK, a partnership firm. The liability is only of the person paying freight is with respect to services provided by GOODS TRANSPORT AGENCY and not any other person. Technical Guide On TRANSPORTATION [ICAI- Jan 2015] .

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(D) Manpower Supply Service / Security Service

14. What are the key features of activity of ‘supply of manpower’ ? The activity of ‘supply of manpower’ has following essential features: (1) One person provides another person with the use of one or more individuals who are contractually employed or otherwise engaged by the first person (the person providing the service of manpower supply). In other words the manpower must be employed by the provider of service and not by the service recipient. (2) The manpower is placed operationally under superintendence and control of service receiver / client. Author: As long as such manpower is not placed operationally under the superintendence or control of the recipient, it shall not be a case of manpower supply, though it will continue to be judged independently whether it comprises any other taxable service. .

HEMANT V. DESHMUKH – 2015- TRIBUNAL Services rendered at principal’s place for which remuneration is paid as per work executed and not as per labour supplied, then, said service cannot amount to ‘manpower supply service’.

(3) Such supply may be on temporary basis (specified period) or otherwise. Author: Contract for supply of manpower vs Job-Contract  CBEC Circular No 190/ 9/ 2015-ST (dated 15th Dec, 2015) • The nature of manpower supply service is quite distinct from the service of job work. The essential characteristics of manpower supply service are that the supplier provides manpower which is at the disposal and temporarily under effective control of the service recipient during the period of contract. Service provider’s accountability is only to the extent and quality of manpower. Deployment of manpower normally rests with the service recipient. The value of service has a direct correlation to manpower deployed, i.e., manpower deployed multiplied by the rate. In other words, manpower supplier will charge for supply of manpower even if manpower remains idle. •

On the other hand, the essential characteristics of job work service are that service provider is assigned a job e.g. fabrication/stitching, labeling etc. of garments in case of apparel. Service provider is accountable for the job he undertakes. It is for the service provider to decide how he deploys and uses his manpower. Service recipient is concerned only as regard the job work. In other words service receiver is not concerned about the manpower. The value of service is function of quantum of job work undertaken, i.e. number of pieces fabricated etc. It is immaterial as to whether the job worker undertakes job work in his premises or in the premises of service receiver.

Therefore, the exact nature of service needs to be determined on the facts of each case which would vary from case to case. Decide whether the activity of fabrication of garments done by Mr A for Mr B amounts to activity of ‘supply of manpower’ or a ‘jobwork activity’? • The activity of fabrication done by Mr A for Mr B amounts to ‘job-work activity’. .

•

However, since this activity amounts to manufacture of excisable goods, this activity will attract excise duty liability in terms of Sec 3 of CEA, 1944. Since this activity attracts central excise duty liability under CEA, 1994, this activity has been put into negative list of services in terms of Sec 66-D(f) of FA, 1994. Thus, Mr A will not be subject to any ST liability.

15. Whether reverse charge shall be applicable under following situations: Situation Applicablity of Reverse Charge Yes a) H (an individual) providing temporary [Client Company shall accountancy and booking staff for client be liable to pay ST] companies

b) A Ltd providing nursery staff to the Max Healthcare Pvt Ltd (Hospital) c)

Partnership Firm providing domestic care workers to Mr A

No

Reasons / Explanation •

This service is supply of manpower service and provided by Individual to the business entity registered as body corporate and hence, reverse charge shall be applicable. Author: TV shall be ‘whole of the amount charged to customer (commission income as well as amounts it passed to the temporary staff as wages)’.

•

This service is supply of manpower service but provided by body corporate and hence, reverse charge shall not be applicable.

•

This service is supply of manpower service and provided by Individual to non-business entity and hence, reverse charge shall not be applicable.

[A Ltd shall be liable to pay ST]

No [Partnership Firm shall be liable to pay ST]

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[Service Tax : Person Liable to Pay Service Tax]  SECONDMENT OF EMPLOYEE: Whether constitutes ‘manpower supply’? [Technical AND Disputed Issue: Discussed For Knowledge Purpose]

Secondment of Employee What is meant by the term secondment? The term secondment covers the situation whereby an employee (or a group of employees) is assigned on a temporary basis to work for another organization (subsidiary company or group concern) of their current employer. E.g., Holding company deputes it staff to subsidiary company for

limited period/work and cost is charged to subsidiary (as re-imbursement or otherwise). This is generally termed as ‘secondment of employees’. Illustration: 1. A multinational owns and operates hotels worldwide through a number of subsidiaries. H Ltd., holding company in USA, it owns and operates a hotel. Mr X is an employee of H Ltd. who works in this hotel. S Ltd, Indian subsidiary of the group, owns and operates a hotel in India where there is a shortage of employees with foreign language skills. For that reason, Mr X is sent to work for five months at the reception desk of S Ltd’s hotel. S Ltd. will pay H Ltd an amount equal to the remuneration, social contributions, travel expenses and other employment benefits of Mr X for the relevant period. Mr X, who remains formally employed and paid by H Ltd. 2. H Ltd, India, specialised in providing engineering services. It employs a number of engineers on a full time basis. S Ltd, the group company in India, needs the temporary services of an engineer to complete a contract on a construction site in India. H Ltd agrees with S Ltd that one of H Ltd’s engineers, who is momentarily not assigned to any contract concluded by H Ltd, will work for four months on S Ltd. contract under the direct supervision and control of one of S Ltd’s senior engineers. S Ltd will pay H Ltd an amount equal to the remuneration, social contributions, travel expenses and other employment benefits of that engineer for the relevant period. Secondment Agreement: It is an agreement entered into between one Company and its affiliate (subsidiary / group company) whereby it depute its staff to affilate for certain period. The deputed/seconded staff remains on the payroll of first company (original employer). Affiliate company reimburses the salary and other cost of seconded staff to first company. The reason for seconded staff being on payroll of first company is to maintain the continuity of their social benefits envisaged under employment term. There are a number of different terms that are used for the three parties involved in a secondment arrangement. (a) The original (or seconding) employer is referred to as the "employer" or "seconder"; (b) The seconded employee is referred to as the "employee" or "secondee"; (Seconded personnel are also known as “expatriates” and (c) The organisation to which the secondee is to provide their services is referred to as the "host".

ST liability on activity of secondment: View-1: Secondment of Employee = Service of supply of manpower View-1: Secondment of Employee = NOT Service of supply of manpower

Seconder is putting his employees (manpower) at disposal of ‘host’ – employees to work under direction / control / supervision of ‘host The secondee/expatriates are becoming employees of ‘host’. What is being paid to secondee is salary which is not subject to ST.

Judiciary on issue of SEONDMENT: [Favorable Rulings] Samsung India Electronics (P.) Ltd. – 2015- TRI Facts Assessee was an Indian subsidiary of Samsung, Korea. The Samsung, Korea provided expatriates to assessee, for which assessee paid certain amount to said foreign holding company.

Decision • All throughout staff had been expatriated by foreign holding company, those staff remained 'employee' of assessee with control and supervision of assessee. Hence, secondment/expatriation of staff from foreign holding company to assessee would not amount to manpower supply services.

• Volkswagen India Pvt. Ltd. – 2013- TRI Appellant had employed some foreign nationals (called 'Global Employees') who • The global employees are working with the Appellant as their were previously employed with other group entities. On their deputation in the employees and accordingly, there is no supply of manpower Appellant Company, the said personnel were relieved by the other group companies service to the Appellant by the foreign company and that the and worked as whole time employees of the Appellant and were put at the disposal method of disbursement of salary cannot determine the nature of and exclusive control of the Appellant. However, the social security liability was transaction. discharged by the foreign company in the home country of the Global Employees which was reimbursed by the Appellant. (Authority Of Advance • M/S North American Coal Corporation India Pvt Ltd – 2015- AAR

NAC = American company NAC Pvt Ltd = Indian subsidiary of NAC -- It applied for Advance Ruling The NAC, India has employed one employee namely Steve R. Sloan. This employee (Sloan) is on the permanent roll of the NAC, US, however, his services were required by the Indian company for its activities. There is an agreement between the Indian company i.e. NAC, India and Shri Sloan. This is a tripartite agreement between NAC, US, NAC, India and Mr. Sloan. Under this agreement, the services of Mr. Sloan were to be utilized by NAC, India for a particular term. As per the agreement that so long as Mr. Sloan serves in India, all his salaries are to be paid by the Indian company i.e. NAC, India

• Merely because the social security of Mr. Sloan while he is in India is being taken care of by the NAC, US. The service of Mr. Sloan with NAC, India cannot be viewed otherwise than salary • There shall be no liability to pay service tax on the salary and the allowances payable by the applicant to the employee in terms of the dual employment agreement and such salary will not be eligible to levy the service tax as per the provisions of the Finance Act.

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It is also provided in the agreement that even when Mr. Sloan stays in India and serves NAC, India his social security interests shall be taken care of by the American company.

16. Reddy & Co. a business owned by an individual, operators a Security Agency. It supplied 10 security personnel to R Ltd. on a monthly charge of Rs 10,000 per person. Determine the taxability in the hands of Reddy & Co. and R Ltd. For this service assuming the service, is provided only for June, 2015. If the services are provided to M/s. Raja & Co. which is an individual business entity, determine the tax liability. Service Provider = Proprietorship Concern Service Receiver = R Ltd (Business Entity registered as Body corporate) Service = Security Service Such service will fall under ‘reverse charge mechanism’. Total Service Tax Liability on the above service is (` 10,000 × 10 person × 14% = ` 14,000) If Service Receiver is

d) R Ltd. e) Raja & Co.

Full Charge applicable? Yes (as SR is Body Corporate) No (as SR is not a Body Corporate)

Liability for Service Provider -----

Liability for Service Receiver 14,000

Invoice Amount

14,000

NIL

Rs 1,14,000

Rs 1,00,000

PARTIAL REVERSE CHARGE – SEC 68 (2) (A) RENTING OF PASSENGER VEHICLES (any type) [Renting of Motor Cab: With or without abatement & Renting of Other Vehicles: Without abatement] 17. Z Transport & Co., a partnership firm, rented out its MOTOR CAB on rental basis to HP Ltd. The rental charges amount to Rs 10,00,000 during June, 2015. Determine the ST payable in respect of this service. How should M/s. Z Transporters & Co. raise the Invoice? Also determine the net amount payable by M/s. Z Transporters & Co. if cenvat credit on inputs and input services is Rs 25,000). Service Provider = Partnership Firm Service Receiver = HP Ltd (Business Entity registered as Body corporate) and it is not engaged into business of renting of motor car Service = Hiring of Motor Vehicles (Motor Cab) designed for carrying passengers Since, renting is to a person who is not engaged in similar business, such service will fall under ‘reverse charge mechanism’. Situation Z Transporters & Co. opting for abatement provided by E/N 26/2012

ST liability ST = [(40% of Value) * 14%] = [4,00,000 * 14%] = 56,000

Z Transporters & Co. not opting for abatement provided by E/N 26/2012

ST = [ Value * 14%] = [10,00,000 * 14%] = 1,40,000

Invoice: Situation Z Transporters & Co. opting for abatement provided by E/N 26/2012 Z Transporters & Co. not opting for abatement provided by E/N 26/2012

ST payable by SP NIL

ST payable by SR

50% of ST = 70,000

50% of ST = 70,000

Basic Value 10,00,000 10,00,000

Net Amount payable by Service Provider M/s. Z Transporters & Co. : Situation ST Liability Cenvat Credit Eligible If abatement is claimed NIL NIL If abatement is not claimed 70,000 ` 25,000

ST NIL 70,000

56,000

Invoice Amount 10,00,000

10,70,000 Net Liability NIL

45,000

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[Service Tax : Person Liable to Pay Service Tax]

18. Mr. X of Jaipur is engaged in providing service of renting of motor vehicle designed to carry passengers to ABC Ltd. of Delhi engaged in textile manufacturing. Mr. X has issued an invoice of Rs. 2,00,000 (exclusive of taxes) without claiming any abatement for services provided during a quarter. State the person liable to pay service tax and amount of tax payable by him. SP = Mr X (Jaipur) = Individual in taxable territory SR = ABC Ltd (Delhi) = Business Entity registered as Body Corporate in taxable territory Service = Renting of Motor Vehicle (Question has not specified whether it is motor cab or not – but that is of no relevance as in case Mr X is not opting for abatement) SP (Mr X) operating without availing abatement (i.e., with full cenvat credit) ST liability= 2,00,000 * 14% = 28,000/Reverse charge is applicable in terms of Sec 68(2) read with relevant notification. SP i.e. Mr. X - 50% of ST and SR i.e. ABC Ltd. - 50% of ST .

ST payable by Mr. X - 50% of Rs 28,000 = Rs. 14,000 [this ST shall be payable on quarterly basis] ST payable by ABC Ltd. - 50% of Rs 28,000 = Rs. 14,000 [this ST shall be payable on monthly basis] 19. Happy Tours & Travels, a proprietary firm, is giving motor vehicle on hire to Aplha trading ltd. The bill amount is Rs 3,000. How much ST is payable by Happy Tours and Travels if (a) they do not intend to avail cenvat credit; (b) they intend to avail cenvat credit Happy Tours & Travels is not eligible for SSP exemption. Alpha Trading Ltd is into business of trading of goods. SP = Happy Tours & Travel = Individual/Proprietorship Firm [in taxable territory (presumed)] SR = Alpha Trading Ltd = Business Entity registered as Body Corporate [in taxable territory (presumed)] Service = Renting of Motor Vehicle (Question has not specified whether it is motor cab or not – but it has been assumed to be Motor Cab as there is indication in question that SP intends to operate without cenvat credit, i.e., under abatement) (a) If SP does not intend to avail credit (i.e., operating availing abatement) ST liability= [(3,000 * 40%) * 14%] = 168/Reverse charge is applicable in terms of Sec 68(2) read with relevant notification. Total ST liability shall be payable by SR. (full reverse charge) ST payable by Happy Tours and Travels - = Nil ST payable by Alpha Trading ltd = 168/Thus, in this case, no ST is payable by Happy Tours and Travels. (b) If SP intends to avail credit (i.e., operating without availing abatement) ST liability= [3,000 * 14%] = 420 Reverse charge is applicable in terms of Sec 68(2) read with relevant notification. SP i.e. Happy Tours & Travels - 50% of ST and SR i.e. Alpha Trading Ltd. - 50% of ST ST payable by Happy Tours and Travels = (50% of 420) = 210 ST payable by Alpha Trading ltd = (50% of 420) = 210 Thus, in this case, ST of Rs 210 is payable by Happy Tours and Travels. 20. Anil Travels Ltd., located in Jaipur, is engaged in providing services of renting of motorcab and discharges its ST liability by availing abatement granted under Notification No. 26/2012. Value of services rendered by the company during the month of October, 2015 is Rs. 10,00,000 (before availing abatement). The company has sub-contracted part of its services to S Pvt. Ltd., which is also engaged in providing services of renting of motorcab. Total value of sub-contracted services is Rs. 1,00,000 and service tax payable thereon is Rs. 14,000. Determine the ST liability of Anil Travels Pvt. Ltd. (to be paid in cash) for the month of October, 2015. Service transaction between S Pvt Ltd and Anil Travels Ltd (both are into same line of business) SP = S Pvt Ltd = Body corporate, located in taxable territory SR = Anil Travels Ltd (Jaipur) = Business Entity registered as Body Corporate and located in taxable territory Service = Renting of Motor Cab SP (S Ltd) operating without availing abatement (i.e., with full cenvat credit) ST liability= 1,00,000 * 14% = 14,000

© DG Education (P) Ltd

[Service Tax : Person Liable to Pay Service Tax]

Reverse charge is not applicable in terms of Sec 68(2) read with relevant notification (as SP as well as SR are into same line of business) ST is payable by SP i.e., S Ltd = 14,000 Service transaction between Anil Travels Ltd and SR (presumed that both are into different line of business) SP = Anil Travels Ltd (Jaipur) = Body Corporate located in taxable territory SR = status not specified Service = Renting of Motor Cab SP (Anil Travels Ltd) operating availing abatement (i.e., without any cenvat credit, except that of services of renting of motor cab taken on sub-contract basis) ST liability= (10,00,000 *40%)* 14 = 56,000 Reverse charge is not applicable in terms of Sec 68(2) read with relevant notification (as SP is not falling into specified category (HIPA) ST is payable by SP (i.e., Anil Travels Ltd) = 56,000 Admissible cenvat credit = 40% of ST paid on input service of ‘renting of motor cab’= 40% of 14,000 = 5,600 Net ST payable = [56,000 – 5,600] = 50,400 21. XY Travels Pvt. Ltd., located in New Delhi, is engaged in providing services of renting of motor cab and discharges its ST liability by availing abatement granted under Notification No. 26/2012. Value of services rendered by the company during the month of October, 2015 is Rs. 5,50,000 (before availing abatement). The company has sub-contracted part of its services to YZ Cabs Pvt. Ltd., which is also engaged in providing services of renting of motorcab. Total value of such subcontracted services is Rs. 50,000 and ST payable thereon is Rs. 7,000. Determine the net ST liability of XY Travels Pvt. Ltd. (to be paid in cash) for the month of October, 2015. [ICAI Supplementary Material] SP = XY Travels Pvt Ltd (Company/Body Corporate) SR = Status Not give (presumed: SR= User, i.e., a person not of same line of business) Service= Renting of Motor Cab (passenger vehicle) Applicability of Abatement & Corresponding ST • Abatement is AVAILABLE (as Motor Cab is being rented out) • GROSS ST on abated value = [(5,50,000 * 40%) * 14%] = 30,800 Applicability of Reverse Charge (Partial Reverse Charge): • NOT APPLICABLE (as SP is body corporate) • Thus, entire ST shall be payable by SP (XY Air Travels Ltd) Admissibility of credit and extent thereof • Since abatement is availed, no credit is admissible except input service of ‘renting of motor cab’ • The provider of input service is YZ Cabs Pvt Ltd (= Body Corporate) • The value of service = 50,000 and ST payable of Rs 7,000 is given. It indicates that the supplier of input service has not opted for ‘abatement’. Since SP has paid ST on full value of service, only 40% of ST paid shall be allowed as credit. Thus, admissible credit = 7,000* 40% = Rs 2,800/-. • Further, SP (= YZ Cabs Pvt Ltd), being a body corporate, partial reverse charge is not applicable. Entire ST liability on input service shall be paid by supplier itself. Computation of net ST liability (to be paid in cash) of XY Travels Pvt. Ltd. for October, 2015 (Rs.) Particulars Gross ST [Abated Value * 14%] 30,800 Less: Cenvat Credit

(2,800)

Net service tax liability to be paid in cash

28,000