Pradeep Jain - Chartered Accountant

Query

(Siddharth Rutiya) Posted On: 19 Nov, 2011

Dear Sir, I have a query related to construction services. AS 7 construction contracts state that the revenue should be recognized on % completion method. whereas now as per point of taxation rules ST should be paid on due basis. now the problem is what shall be entry in accounts as per AS. Because if we due drs following ST rule we are ignoring AS 7 and if we follow AS 7 we are ignoring ST due basis. Waiting for an early reply.

Rule 3 of the Point of Taxation Rules provide that service tax will be payable from the date of issue of invoice or from payment made, whichever is earlier. If the invoice is issued within the prescribed period of 14 days then from the date of completion of the provision of service, service tax will beome payable. And it will bw the date of completion of provision of service or payment, if the invoice is not issued within the prescribed period. First of all it is important to note that, rules that govern accounting in books and that govern tax law such as service tax are different and should be followed individually. They should not be mixed as each one have different statue backing with them. In the accounting, the concerned point is about construction contracts, which is governed by AS-7 “Construction contracts”. The accounting in the books shall be done as per above standard (as the same is mandatory in nature). As per this AS revenue and cost should be recognized as per % of completion method, where contract revenue is matched with contract cost incurred in reaching stage of completion. Contract revenue is recognized as revenue in the statement of profit and loss in the accounting periods in which the work is performed. Contract costs are usually recognized as an expense in the statement of profit and loss in the accounting periods in which the work to which they relate is performed. In such a case, the agreement between contractor and contractee becomes important. This is because payment is made on continuous basis and invoice is raised in accordance with the relevant agreement. This agreement decides date of making payment and the date on which invoice is raised. In such a situation, payment of service tax as per Rule 3 of the Point of Taxation Rules, 2011 shall be made at the time of making payment or date of raising invoice which ever is earlier. Thus, the account should be prepared as per relevant statue i.e. AS-7 “Construction contract” and service tax should be paid as per Rule 3 of Point of Taxation Rules, 2011.

Comments

Query