Service Tax Liability on Recipient in Reverse Charge Mechanism

By | October 19, 2012

Service Tax Liability on Service Recipient in Reverse Charge Mechanism, if Service Provider turnover does not exceeds 10 Lakhs.

Service Tax Liability on Recipient in Reverse Charge Mechanism
Service Tax Liability on Recipient in Reverse Charge Mechanism

Consider the following issue:

A Ltd is engaged in supplying Manpower to B Ltd. A Ltd is new company and is enjoying exemption limit of Rs. 10 lakhs under service tax. Hence, Invoice raised by A Ltd to B Ltd under Manpower supply service is without charging service tax on the basis of A Ltd was exempted.


1. Whether B Ltd is liable to pay service tax under reverse charge mechanism even though service provider is exempted?

Under the negative list regime or reverse charge mechanism;

  1. a body corporate (Service receiver)
  2. receiving works contract services from (service provider)

  • an individual,
  • Hindu undivided family,
  • partnership,
  • association of person or
  • body of individuals

is required to part pay service tax under the reverse charge mechanism. The service recipient is required to discharge 50% of the amount of tax payable on such services.

It has been clarified under the Guidance Paper issued by the Central Board of Excise & Customs that even where the service provider avails of the turnover-based exemption (since his turnover is less than Rs 10 lakhs), the service provider is required to discharge the prescribed portion of tax under the reverse charge mechanism.

10.1.3 If the service provider is exempted being a SSI (turnover less than Rs 10 lakhs),how will the reverse charge mechanism work?

The liability of the service provider and service recipient are different and independent of each other. Thus in case the service provider is availing exemption owing to turnover being less than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient shall have to pay service tax which he is obliged to pay under the partial reverse charge mechanism.

Further the service recipient has the option of choosing any of the valuation methods for the purpose of computing the service tax payable by him.You can adopt suitable method case to case basis ,detail is given here (valuation of Works contract under service tax wef 01.07.2012)

Download Link
Cenvat rules changes notification
76.93 KB
Free E book On service Tax changes.pdf
Free ebook on service tax changes by CBEC
1.35 MB
negative List of services.pdf 
76.7 KB
Service Tax notification 25-40 dt 20.06.2012.pdf 
513.5 KB

Leave a Reply

Your email address will not be published. Required fields are marked *