Accounts

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

24 January 2012 a company is authorized dealer of tata motors and is also falling in service tax u/s 65(105)(ZO).at the time of filling of return of service tax it is taking credit from excise.but at time of purchases its booking purchases from full amount without deducting excise duty .is it correct or not.....? plz reply......

CA Nikhil Jhanwar

CA Nikhil Jhanwar (Expert)
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24 January 2012 If you are taking credit of excise duty....then you have to bifurcate amount of purchase and excise duty.....Excise duty available for credit should not be booked in purchase account but should be debited to Cenvat Credit receivable A/c and at the time of utilization of credit it will be credited with corresponding debit to service tax payable account as the case may be....

Querist : Anonymous

Querist : Anonymous (Querist)

30 March 2012 thanks sir

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Querist : Anonymous

Querist : Anonymous (Querist)

30 March 2012 a company is authorized dealer of tata motors and is also falling in service tax u/s 65(105)(ZO).at the time of filling of return of service tax it is taking credit from excise.but at time of purchases its booking purchases from full amount without deducting excise duty .is it correct or not.....? plz reply...... what a/cing entry will be done in book

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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14 July 2024 Based on the information provided, it appears there might be a misunderstanding in the treatment of excise duty for purchases and claiming credit for service tax. Let's clarify the correct accounting treatment and the process involved:

### Correct Accounting Treatment:

1. **Purchases Including Excise Duty:**
- When purchasing goods from Tata Motors or any supplier, the company should record the full invoice amount including excise duty in their books of accounts.
- For example, if the purchase invoice from Tata Motors is ₹1,00,000 including ₹10,000 excise duty, the accounting entry would be:
```
Inventory or Expense Account Dr. ₹1,00,000
Excise Duty Payable (Current Liability) ₹10,000
Accounts Payable or Bank ₹1,10,000
```
- Here, ₹1,00,000 is debited to either inventory (if goods are purchased for resale) or the respective expense account (if goods are purchased for own use).
- ₹10,000 is credited to Excise Duty Payable as it represents the liability to be paid to the government.

2. **Service Tax Credit:**
- The company can claim credit for the service tax paid on input services (like repairs and maintenance) or on goods used in providing taxable services under Section 65(105)(zo) of the Finance Act.
- For instance, if the service tax credit amount for a particular period is ₹5,000, the accounting entry would be:
```
Service Tax Credit Receivable (Current Asset) ₹5,000
Service Tax Payable (Current Liability) ₹5,000
```
- Here, the service tax credit receivable account is debited for ₹5,000, representing the credit available.
- The service tax payable account is credited for ₹5,000, reflecting the reduction in the liability.

3. **Adjustment Entry:**
- To reconcile the service tax credit with the service tax payable and ensure proper utilization:
```
Service Tax Payable (Current Liability) ₹5,000
Bank Account or Input Service Account ₹5,000
```
- This entry records the payment or utilization of service tax credit against the service tax payable.

### Key Considerations:

- **Accounting Accuracy:** It's crucial to record purchases inclusive of excise duty and ensure proper documentation of service tax credits.

- **Tax Compliance:** The company should adhere to the guidelines under the Finance Act for claiming service tax credits and paying excise duties.

- **Audit and Compliance:** These entries should be supported by proper documentation for audit and tax compliance purposes.

In summary, it's important for the company to correctly record purchases including excise duty and appropriately claim service tax credits in compliance with tax regulations. This ensures accurate financial reporting and adherence to tax laws.