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FAQs on Reverse Charge Mechanism of Service Tax

Payment of Service Tax under Reverse Charge Mechanism: Where Service tax is payable under Reverse Charge Mechanism, it is to be paid by Cash only. Thus benefit of Cenvat credit cannot be availed of in such a case.

But any Service Recipient so liable to pay service tax in the above scheme can claim Cenvat credit of such tax paid by him and utilize the credit against

* Central Excise duty payable on manufacture of final goods OR

* Service Tax payable by him on any output service

on the basis of copy of GAR 7 challan.

Registration of Service Recipient under Service Tax: If Service Recipient is paying service tax under Reverse Charge Mechanism, he is required to get himself registered for Service Tax. He will have to file service tax return even if it is a NIL return.

Exemption for SSI (Turnover less than 10 lakhs): If Service Provider claims exemption on account of SSI i.e. his turnover/gross receipts are less than 10 lakhs p.a., he will not be liable to pay any service tax under Reverse Charge Mechanism.

However Service Recipient will still be liable to pay service tax at the rate applicable to him under the Reverse Charge Mechanism. The Service Recipient cannot claim exemption of SSI.

Calculation of Service Tax payable for Service Recipient and its co-relation with tax liability of Service Provider: In the explanation provided with the Notification referred in previous post, the calculations of tax liability of Service Recipient and Service provider are independent of each other. Thus Service Recipient can independently avail or forgo any abatement or choose a valuation option which is different from Service provider.

Point of taxation of service tax liability under this scheme: The point of taxation varies in the foll. ways:

1. For Service Provider: It is the date of invoice or date of receipt of payment, whichever is earlier, provided invoice is issued within 30 days from date of receipt of payment/ completion of service. Else it is date of receipt of payment or date of completion of service, whichever is earlier.

2. For Service Recipient: It is the date of payment of invoice, provided payment is made within 6 months of invoice being issued. Else it will be date of invoice.

Refund of Unutilized Convert credit to Service Providers: If Service Provider is unable to utilize the Convert credit of service tax paid under Reverse Charge Mechanism in respect of Input services; he can claim refund of such unutilized amount, subject to certain terms and conditions. Such refund is not available to Service Recipients.

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