General Principle of Liability
- Under reverse charge, the recipient of service was liable to pay the service tax.
- This differed from the normal rule where the service provider paid the tax.
- Liability arose when services were notified by the government.
- The mechanism ensured tax recovery in cases where the provider was unregistered or non-resident.
- It applied to both individuals and entities receiving specified services.
Notified Recipients under Full Reverse Charge
- Body corporates receiving services from individual service providers.
- Importers of services from outside India.
- Business entities availing services from advocates or arbitral tribunals.
- Companies receiving sponsorship services.
- Factories and institutions using manpower supply or security services.
Categories under Partial Reverse Charge
- Both the provider and the recipient shared tax liability in certain cases.
- For manpower supply, the recipient paid 75% and provider paid 25%.
- For works contract services, the recipient’s share was 50% or more.
- Partial reverse charge was limited to specific services only.
- Each party had to pay their respective share independently to the government.
Requirements for Recipients under RCM
- Recipients liable under reverse charge had to obtain service tax registration.
- They were required to pay service tax using their own service tax code.
- Filing of ST-3 return was mandatory, showing reverse charge liability.
- Tax had to be paid in cash; CENVAT credit was not permitted for initial payment.
- Credit could be claimed after tax payment if eligible.
Exclusions and Clarifications
- Reverse charge did not apply unless the service was officially notified.
- Individuals or non-business recipients were generally not liable.
- Small service providers under threshold exemption were not covered unless specified.
- Government and charitable service providers were excluded unless stated.
- Circulars clarified scope, responsibilities, and applicable procedures.
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