Thursday, October 1, 2015

Manner of payment of Service Tax FAQ

Manner of payment of Service Tax, when clients (recipient of service) do not pay service tax amount, what should be done? 
    Is the Service Tax payable by the assessee even in cases where his clients [recipient of service] do not pay for the service(s) rendered or when the client pays only a part of the bill raised in this regard?
    Though the burden of Service Tax ultimately rests on the service recipient the law requires the service provider to collect the tax from the service recipient on the services provided and deposit to the Government Account . Therefore whether the service provider receives the payment from his client (service recipient) or not , he is legally bound to pay the service Tax liability in respect of the services rendered by him. The Service Tax has to be paid when the Invoice is issued or the completion of service provided or certain advance/payment is received for the services provided. Therefore Service Tax is payable when payment for the part of the bill is paid by the service recipient. However the tax liability will be to the full extent on the total amount to be received by the service provider.

    What is meant by "completion of service" as many situations it is not possible to issue invoices within 14 days of the completion of the service since the exact date of completion of service is difficult to identify?
    The Service Tax Rules, 1994 requires that invoice should be issued within a period of 14 days from the completion of the taxable service. The invoice needs to indicate interalia the value of service so complete. Thus the term e physical part of providing the service but also the completion of all other auxiliary activities like measurement, quality testing etc. but excluding any filmsy or irrelevant grounds. Thus the test for determination if a service has been completed would be the completion of all the related activities that place the service provider in a situation to be able to issue an invoice

    How does one work out the Service Tax liability and pay the same to the Government, in case the customer or a client pays only the value of the service amount, but not the Service Tax amount mentioned in the bill?
    Service Tax is payable on amount realized. In given situation, the amount so realized from the client would be treated as gross amount inclusive of Service Tax and accordingly the value of taxable service and the Service Tax liability are worked out as follows:

    For example :

    Value of taxable service (AV) = Rs. 1000
    Amount Billed = Rs.1000 + Service Tax Rs.103.00 = Rs.1103.00
    Amount paid = Rs.1000. Treat Rs.1000 as gross amount inclusive of service tax.

    In case the gross amount, including service tax, received is, say, Rs 1000. In such cases the service tax liability may be arrived at by reverse calculation in the following manner.
      AV =1000 X 100 = Rs. 906.62 (Rs.907)
      Amount of Service Tax + Education Cess Payable = Rs.93

      Note: If the recipient of service pays full billed amount later, the differential service tax must be paid forthwith.


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