Payment of Service Tax

PJ/CASE STUDY/2010-11/24

02 October 2010

PJ/Case Study/2010-11/24

Case Study

Prepared By:

Sukhvinder Kaur LLB [FYIC]

And Mayank Palgauta

Introduction:

Most of the time, the service provider raises the bill charging service tax to the recipient of service before the service provided but the payment of the service provided is not done immediately but is done after some time. In such a situation whether the service tax is to be calculated at the receipt basis or on the billed basis? This is the issue involved in the case under study.

Relevant Legal Provisions:

Rule 6 (1) of the Service Tax Rules, 1994

6. Payment of service tax:

(1) The service tax shall be paid to the credit of the Central Government,-

(i) by the 6th day of the month, if the duty is deposited electronically through internet banking; and

(ii) by the 5th day of the month, in any other case,

immediately following the calendar month in which the payments are received, towards the value of taxable services:

Provided that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 6th day of the month if the duty is deposited electronically through internet banking, or, in any other case, the 5th day of the month, as the case may be, immediately following the quarter in which the payments are received, towards the value of taxable services:

Provided further that notwithstanding the time of receipt of payment towards the value of services, no service tax shall be payable for the part or whole of the value of services, which is attributable to services provided during the period when such services were not taxable:

Provided also that the service tax on the value of taxable services received during the month of March, or the quarter ending in March, as the case may be, shall be paid to the credit of the Central Government by the 31st day of March of the calendar year.

Explanation - For the removal of doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include any amount credited or debited, as the case may be, to any account, whether called ‘Suspense account’ or by any other name, in the books of account of a person liable to pay service tax.

In the matter of M/s K. D. Motors, Jodhpur

[Order-in-Original No. 543 (ST) 2009-10, dated 29.06.2010]

Brief Facts:

- The Noticee is engaged in providing the services of authorised service station and is registered with under service tax.

- Department issued show cause notice for the period from April 2006 to September 2006 alleging that the noticee has short paid the service tax amount of Rs. 31677/-. Recovery of the said amount was proposed in terms of Section 73 of the Finance Act, 1994 with interest in terms of Section 75. Department also proposed to impose penalty under Section 76.

Noticee’s Contentions:

The Noticee filed reply to the show cause notice raising the following contentions:

¨ It was submitted that the noticee had correctly calculated and paid the service tax. They have paid the service tax on receipt basis.

¨ Noticee contended that the show cause notice was issued on the basis of amount billed rather than the amount received resulting into the variation.

¨ Noticee relied upon the provisions of Rule 6(1) of the Service Tax Rules, 1994 which prescribe the service tax payment on receipt basis. Thus, when the amount is actually received, then only liability to pay Service Tax arises, though the rate remains what was charged at the time of billing.

Issue Involved:

The issue involved in this case was that

Whether the service tax is to be paid on receipt basis or billed basis?

Decision of the Deputy Commissioner:

Ø The Deputy Commissioner scrutinized the ST-3 Return filed by the Noticee for the half year ending September 2006 and found that the service tax was calculated on the receipt basis.

Ø It was held that the Department wrongly demanded service tax on amount billed which was unwarranted in view of Rule 6(1) of the Service Tax Rules, 1944.

Ø In the end it was held that there was no short payment of service tax.

Order of the Deputy Commissioner :

Proceedings initiated vide the impugned show cause notice were dropped.

Conclusion:

The Deputy Commissioner rightly held that the service tax is to be calculated on the amount actually received. The liability service tax of a particular period arises on the amount which is actually received and not on the amount which has not yet been received.

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PJ/CASE STUDY/2010-11/24
02 October 2010

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