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2012-09-03

Reverse Charge Mechanism needs clarification for SMEs: FIEO

India’s export promotion organisation, Federation of Indian Export Organisations (FIEO) has said a clarification is needed in Reverse Charge Mechanism (RCM) under new service tax dispensation, which otherwise would add to paperwork and costs of MSMEs that

India’s export promotion organisation, Federation of Indian Export Organisations (FIEO) has said a clarification is needed in Reverse Charge Mechanism (RCM) under new service tax dispensation, which otherwise would add to paperwork and costs of MSMEs that are not registered with excise authorities.

M Rafeeque Ahmed, President, FIEO, said, “Onus of payment in some categories has been divided between service receiver and service provider; for example, a work contract involves 50:50 liability or provider and receiver and 25:75 in the case of manpower supply, and as a result, those MSMEs which are not registered with excise authorities need to register themselves adding to paperwork and costs.”

The Central Board of Customs and Excise (CBEC) had brought reverse charge mechanism in service tax from July 1, 2012.

Ahmed also sought clarification on the cut-off date for applicability of RCM.

"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, says 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," he said.

"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," he added.

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