Service Tax - Reverse Charge Mechanism - Needs Clarifications -FIEO
Mr. M RAFEEQUE AHMED, President, Federation of Indian Export Organisations (FIEO) in a Press Release states that the onus of payment in some categories has been divided between service receiver and service provider for e.g. a work contract involves 50:50 liability or provider & receiver & 25:75 in the case of manpower supply and as a result those MSME's who are not registered with excise authorities need to register themselves adding to paperwork /costs.
FIEO chief explained that the cut-off date for applicability of RCM also needs clarification. While the tax department in a circular dated July 6 clarified that the "provisions of partial RCM would also be applicable in respect of such services where point of taxation is on or after July 1, 2012 under the applicable rule in respect of the service provider", Rule 4 of the Point of Taxation Rules, 2011 states that the service recipient is liable to pay service tax if the payment was received and the invoice issued after July 1 this year even if the services were rendered before that date. Also, for services rendered and payment received after July 1, even if the invoice is dated prior to July 1, the service tax liability would fall on the recipient.
Further, President FIEO elaborated that while point of taxation for the service provider is based on the date of invoice if issued before receipt of payment for the service recipient, the liability is always on payment of the value of the service. However, if there is no payment within six months, the due date for the recipient shall be reckoned as the date of invoice, as it applies to the service provider. This could lead to an interest exposure in the hands of the service recipient if the payment for services is not made within six months.
Besides clarifications on cut-off date for applicability of RCM need to be given, even for services brought into the tax net from July 1 and notified for RCM, Rule 5 of the POTR would be applicable and service tax would be liable on services rendered prior to July 1, if the invoice is dated post-July 1 and was raised 14 days after the completion of service, the recipient is liable to pay service tax.
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