GST Update on Problem In GST For Assessees Paying Service Tax On Receipt Basis Under Existing Law

In the current service tax regime, relief has been provided to specified professionals working on small scale as an individual, partnership firms, LLPs or one man company. As per fourth proviso to Rule 6(1) of the Service Tax Rules, 1994;the individuals, partnership firm and one man companies whose aggregate value of taxable services provided from one or more premises is 50 lakh rupees or less in the previous financial year, the service provider has the option to pay service tax in the month in which payment is received irrespective of bill date. For example, a chartered accountant falling in this category raises invoice against the services provided on 10.2.2017. The payment received against this invoice is on 5.4.2017. Under normal circumstances, the point of taxation is10.2.2017. However, under fourth proviso to rule 6(1) of Service tax Rules, 1994;point of taxation shall be 5.4.2017.

As we are transitioning to GST regime and GST law does not prescribe any such identical scheme; the transition phase will be a difficult one for the professionals operating under this scheme. This update tries to bring forth the difficulties these assessees would be facing while switching to the new GST regime. The situation can be explained by following example:-
Suppose, a chartered accountant has raised invoice on 10.6.2017 with the service tax charged thereupon. The recipient books the expense in his accounts and avails the credit on 12.6.2017. He has also deducted TDS on the same. Since the chartered accountant is paying the service tax under this scheme, the service tax will be paid to government exchequer when the payment is received. Now, in this case, the payment is received in GST regime. So, how this will be treated?

Since the amount will be received after the appointed date, how will the service tax be paid to the government treasury since there will be no Service Tax law after appointed day? Should the service provider issue a new invoice on which he shall charge GST on the value of said services?No, it cannot be done in view of section 142(11)(b) of the CGST Act, 2017, which reads as follows:-
“No tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994”.

Thus, though CGST Act, 2017 clarifies that the GST shall not be payable on services to the extent the tax was LEVIABLE under Chapter V of the Finance Act, 1994. In the instant case, it is clear that the service tax has already been levied; only the payment of said tax is postponed till the date of receipt of invoice value. Thus, GST will not be levied, but how the service tax would be paid to government exchequer in such a case when the payment against the invoice will be received in GST regime? The government should clarify the issue at the earliest in order to avoid the hassle.

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GST Update on Problem In GST For Assessees Paying Service Tax On Receipt Basis Under Existing Law

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