Reverse Charge Mechanism under Service Tax Specifically for Goods Transport Agency

Dear Friends,

It is time to say goodbye to the year 2015. In the entire year, we have tried to provide you the regular and important updates regarding law, economy etc.

Probably as a last professional update for the year 2015, we are presenting the Reverse Charge Mechanism of Service Tax specifically (i.e. Service tax liability is on Service Receiver) specifically covering Goods Transport Agency as it affects every trading, manufacturing and Service industry.

The entire article is produced here and it is available on our website.

Kindly find below link for the same:
http://www.pinkeshchhajedandco.com/article-details.php…

The reverse charge mechanism (RCM) was first introduced effectively from 01-01-2005 vide Notification No. 36/2004-ST dt. 31-12-2004 read with Rule 2(1)(d) of Service Tax Rules, 1994.

With effect from 01-07-1012 a new mechanism of reverse charge (RCM) and partial reverse charge or joint charge (PRCM / JCM) was introduced with the introduction of negative list regime of service tax.

Some fundamental concepts of reverse/partial charge mechanism are;

1.  Applicability of RCM/PRCM is dependent on the status & location of Service Receiver (SR) and Service Provider (SP) and taxability of service. RCM does not apply on non-taxable and exempted services but applies on abated services and where value is determined by valuation rules.

2.  No threshold exemption of Rs. 10 lacs is available to Service Receiver (SR) as this exemption is available to Service Providers only. (refer NN 33/2012-St dt. 20-06-2012)

3.  Service Receiver is liable to pay service tax under this mechanism from very first invoice received under this category. It means SR is liable to pay ST even when SP is within the ambit exemption limit under NN 33/2012-ST.

4. This service tax liability generally has to be met in cash.

Following services are covered under reverse charge/partial reverse charge mechanism under Rule 2(2)(d)(i) read with Notification No. 30/2012-ST as updated by NN 45/2012-ST, NN 46/2012-ST & NN 10/2014-ST:

1.    Insurance Agent Service

1A. (Banking) Recovery Agent Service (w.e.f. 11-07-2014)

2.    Goods Transport Agency Service

3.    Sponsorship Service

4.    Legal Service

5.    Arbitral Tribunal Service

6.    Services by Directors of the body corporate to the  body corporate (w.e.f. 11-07-2014)

7.    Support Services provided by Government/Local Authority

8.    Rent-a-Cab Service

9.    Manpower Supply Service

10.  Security Service (w.e.f 07-08-2012)

11. Service portion in execution of Works Contract

12. Import of Taxable Services

Detailed analysis of Services provided by Goods Transport Agency (GTA) is provided as below:     

Sr. No.	Description of service	Provided		Percentage of  ST payable by the person providing service	Percentage of ST payable by the person receiving the  service
		By	to
1.	Goods Transport Agency (Applicable to transport by road- One who issues consignment note)	Goods Transport Agents located in the taxable territory	Consignor Or Consignee who is - (a) factory, society, registered dealer of excisable goods, body corporate, partnership firm, AOP & (b) who is liable to pay freight either himself or through his agent	NIL	100% W.E.F. 01.04.15, payable on 30% (earlier 25%) if Cenvat Credit has not been availed by service provider. Exemption of Gross Freight Upto Rs. 1,500/- for single full consignment & Rs. 750/- for part consignment continues.

Reverse Charge: if the person liable to pay freight falls within the category of persons specified under Rule 2(1)(d)(i)(B), reverse charge apply.

Under Rule 2(1)(d)(i)(B) if the person liable to pay freight is;

(I) any factory registered under or governed by the Factories Act, 1948 (63 of 1948);

(II) any ‘society’ registered under the Societies Registration Act, 1860 (21 of 1860) or under any other law for the time being in force in any part of India;

(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 (1 of 1944) or the rules made thereunder;

(V) any ‘body-corporate’ established, by or under any law; or

(VI) any ‘partnership firm’ whether registered or not under any law including association of persons;

Any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage is liable to pay service tax.

Provided that when such person is located in a non-taxable territory (i.e. in J&K or abroad), the provider of such service (i.e. GTA) shall be liable to pay service tax.

Non-applicability of reverse charge i.e. GTA is liable to pay service tax:

a. If consigner or consignee, who pays or is liable to pay freight either himself or through his agent, does not falls in above mentioned categories of specified,

b.  If consigner or consignee, who pays or is liable to pay freight either himself or through his agent, is located in a non-taxable territory (i.e. in J&K or abroad), [refer Rule 2(1)(d)(B) of Service Tax Rules, 1994]

The Mega Exemption Notification No. 25/2012 - S.T. Dated 20.06.12 allows the following exemptions (as relevant to the industry) –

“21. - Services provided by a goods transport agency by way of transportation of –

(a) agricultural produce;

(b) goods where gross amount charged for the transportation of goods on a consignment transported in a single goods carriage does not exceed one thousand five hundred rupees; or

(c) goods, where gross amount charged for transportation of all such goods for a single consignee in the goods carriage does not exceed rupees seven hundred fifty;

Swachh Bharat Cess Applicability

# Service Tax : Govt. notifies the applicability date for Swachh Bharat Cess. It is applicable w.e.f 15.11.2015 at the rate of 0.5% of the value of taxable services.

Regarding order of CBDT of extension of time limit for Audit Report and ITR filing

We welcome the order of CBDT dated 1st October 2015 regarding extension of date for filing Audit Report and Income Tax Return.

However, we need to rethink that whether we really need extension.

Last year totally new TAR forms were prescribed so we were cent percent correct in obtaining the extension.

This year due to unfavorable situation in Gujarat, due date for non auditable assessees were being extended suo moto by 7 days in Gujarat and then for entire country. That was the legitimate reason for extension.

This time in ITR and in TAR forms no significant changes been implemented as compared to last year.

We are well equipped with softwares and not making any reports or returns manually, so majority of the work we can complete before time except xml schema generation.

Also the point of Depreciation as per Companies Act 2013 is being optional for this year and that is also applicable to companies only. That has been notified long back in the month of Sept 13, so we can pre-plan it.

I just mean to say that we need some planning as an expert professional. Our profession is shown with great respect. We need to take the integrity of our profession to the higher and higher level day by day and year by year. We should do something that we will be ready with all planning at the earlier stage only.

And yes, it would be totally injustice if I forget to thank Mr CA Aniket Talati,Durgesh Buch and all the members who have contributed their valuable time and efforts in convincing judiciary for extension. Their valuable efforts cannot be ignored. We really thank and salute them. And really apologize if any one is hurted.

Relaxed Rule for Deposit from Relative - A good initiative..

Much awaited MCA Update on Deposit From Relative By Private Limited Company:

Now a private company can accept unsecured loans apart from director even from a relative of a director of the company.
The only requirement is of non utilization of borrowed funds for this purpose.

A welcome decision., Better Late than Never..!!!

Entire notification is available at http://www.mca.gov.in/Ministry/pdf/Amendement_Rules_15092015.pdf

New Set of Exemptions to Pvt Ltd Companies vide Notification - GSR 464 Dtd 05-06-2015

Companies Act 2013 has brought away majority of the exemptions given by Companies Act 1956. 

So on the one hand Govt.is trying to encourage new businesses and trying to get inflow of capital into the business and on the other hand keeping the harsh provisions for Pvt Ltd Co. 

Later on, Govt has realized that both can not walk on a parallel road.  

So, a new set of exemptions been provided as listed below.

Sr. No.	Chapter/ Section of the Act	Particular	Exemption Provided in MCA Notification
A.	Chapter 1, Sub-clause (viii) of clause (76) of section 2.	Bare Act Language of Section:“related party”, with reference to a company, means- any company which     is— (A) a holding, subsidiary   or an associate company of such company;                         or (B) a subsidiary of   a holding company   to	Holding, Subsidiary and Associate Company will not cover under Related Party for the purpose of section 188. Note:-  Although Holding company is excluded but Director (other than independent Director), KMP  of holding company or their relative are still included in definition of Related Party. (Section 2(76)(ix)) Language of Notification: Shall not apply with respect to section 188.
B.	Chapter IV, Section 43 and Section 47	Section 43- Kind of Capital Section – 47 Voting Right	If anything else mentioned in MOA & AOA then MOA & AOA prevail over the section 43 and 47. Language of Notification: Shall not apply where MOA & AOA of the Private Company so provides.
C.	Chapter IV, Section 62(1)(a)(i) and (2)	Bare Act Language Earlier: The offer of Right issue of shares shall be open for minimum 15 days not exceeding 30 days from the date of the offer within which offer made.	In case 90%, of the members   of   a     private company   have   given their consents in writing or in electronic mode then Offer Can Be Close Before 15 Days. Note:-  The time limits cannot be increased, they can only be reduced. Language of Notification given at the end (S. No. 1)
D.	Chapter IV, Section 62(1)(b): Further Issue of Share Capital	For ESOP Special Resolution  Required.	Now for ESOP Ordinary Resolution is enough. Language of Notification The words “special resolution”, the words “ordinary resolution” shall be substituted.
E.	Chapter IV- Section 67	Restrictions on purchase by company or giving of loans by it for purchase of its shares.	Language of Notification given at the end (S. No. 2)
F.	Chapter V- Section-73(2) (a) (e):	Earlier Private Limited Company can accept deposits from the Member after follow up the procedure mention under Section 73.	Acceptance Of Deposits From Members Made Easier For Certain Companies Private Limited Company can accept deposit from the Members upto 100%of aggregate of the paid up share capital and free reserves without followings: ·  Issue Circular ·  File circular with ROC · Maintain deposit  repayment reserve · Provide deposit insurance Language of Notification is given at the end (Point no. 3)
G.	Chapter VII	· 101- Notice of meeting. · 102- Statement to be annexed to notice. · 103- Section Quorum for meetings. · 104- Chairman of meetings. 105- Proxies. · 106- Restriction on voting rights. · 107- Voting by show of hands. · 109- Demand for poll.	If anything else mentioned in AOA then AOA prevail over the section 101-107 & 109. Articles of A Private Company May Override Provisions Pertaining To 1.       Content & Length of Notice 2.       Explanatory Statement 3.       Quorum 4.       Chairman 5.       Proxies 6.       Restriction on Voting Rights 7.       Show of Hands & Poll Language of Notification is given at the end (Point no. 4)
H.	Chapter   VII- Section:117 (3)(g)	Earlier Provision: Copy of Resolution passed in pursuance of sub-section (3) of Section 179 required to filing with ROC.	Now there is NO NEED TO FILE FORM MGT-14 for the purposes of resolutions passed u/s 179(3) read with rule 8 of Companies (Meeting of Board & its power) Rules, 2014 Language of Notification Provisions of Section 117(3)(g) will not apply on Private Limited Company.
I.	Chapter X- Section 141 (3)(g):	Earlier Auditor can’t be appoint as auditor in more than 20 (Twenty) Companies.	Now under the limit of 20 (Twenty) Companies following will not include: ·   one person   companies, ·   dormant companies, ·   small companies, and ·   Private Companies having paid-up share     capital   less   than     one hundred crore rupees”. Limit of 20 Companies only Includes:- 1. Public Companies 2. Private Companies having paid up capital of Rs. 100 Crore or more
J.	Chapter XI- Section   160-	Candidature Not Required For Appointment of Director at General Meeting	Now there is no need to deposit Rs. 100,000/- by the Director at the time of appointment.
K.	Chapter XI- Section 162-	Appointment of directors Need not to be voted individually.	Now more than one director can be appoint via a single resolution.
L.	Chapter XII- Section 180-	Restrictions on powers of Board Not Apply	Now there is no need to pass “Special Resolution” for the purposes of passing of Resolution mentioned under Section 180. Example: 1. Borrow exceeding paid up capital & free reserves. 2. Sell/lease/dispose off undertaking
M.	Chapter XII- Section 184(2)	Disclosure of interest by director.	Now Interested directors can participate in the meeting and vote in the meeting after disclosure of his interest. Note:-  He Cannot be counted in Quorum (Section 174(3) explanation)
N.	Chapter XII- Section 185-	Loan to Director was earlier not allowed.	Loan to director are allowed for Private Limited Companies if its fulfill the below mentioned conditions: 1. Body Corporate should not be Shareholder 2. Not borrowed money from Bank/ Financial Institution/ Body Corporate exceeding lower of the following:-  i. Twice its Paid up capital ii. Rs. 50  crore 3. No repayment default subsisting of such borrowings at time of giving loan Note: Giving of loans/ guarantee/security to Group Companies now possible. Language of Notification is given at the end (Point no. 5)
O.	Chapter XII- second proviso to section 188 (1):	Bare Act Language Earlier: No member of the company shall vote on such Resolutions, to approve any contract or arrangement which may be entered into by the Company, if such member is related party.	Restriction On Voting Right In General Meeting In Case Of Related Party Transaction Not Applicable:Now This proviso will not apply on Private Limited Company.“Even if, Member is related then also he can vote on such resolution required to be pass u/s 188 in GM.
P.	Chapter XIII-section 196(4) & (5):	Appointment of MD, WTD & Manager.	Now there is no need to Pass Resolution in General Meeting for appointment of Managerial Personnel and no need to file form MR-1. Managerial Personnel can be appoint in Private limited Company without following: 1.  Shareholder’s Ratification in not required. 2.  Schedule V not applicable. 3.  MR-1 not required to be filed 4.  T&C of appointment, remuneration not        mandatory to be mentioned in resolution

S. N.	LANGUAGE OF NOTIFICATION
1.	Chapter IV, sub-clause (i) of clause (a) of sub-section (1) and sub-section (2) of section 62.Shall apply with following modifications:-In clause (a), in sub-clause (i), the following proviso shall be inserted, namely:-Provided   that     notwithstanding anything contained in this sub- clause and sub-section (2) of this section, in case 90% , of the     members   of   a     private company   have   given    their consents in writing or in electronic mode, the periods   lesser than those specified in the said sub- ¬clause or sub-section shall apply.
2.	Chapter IV, section 67.Shall not apply to private companies -I.   in whose share capital another body corporate has invested any money;II.   if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice its paid up share capital or fifty crore rupees, whichever is lower; andIII.   such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.
3.	Chapter V, clauses (a) to (e) of subsection (2) of section 73.Prohibition Shall not apply to a private company which accepts from its members monies not exceeding one hundred per cent, of aggregate of the paid up share capital and free reserves, and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.
4.	Chapter VII, sections 101 to 107 and section 109.Shall   apply     unless   otherwise specified in respective sections or the     articles   of   the company Provide otherwise.
5.	Chapter XII, section 185 Provisions of Section 185 not apply to a private company if its fulfill the following below mention conditions- (a) in whose share capital another body corporate has invested any money; (b) if the borrowings of such a company from banks or financial institutions or anybody corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and(c)  such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.

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