Adjustment of service tax paid

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CA Bipin Kumar (Querist)
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18 February 2014 Hi, we have received advance towards the govt. project awarded to us. later on project has been given to someone else and BG has been encashed by contractee for realisation of mobilisation advance paid. we had paid service tax on amount of advance received. now can we do.adjustment of service tax paid. and what will be treatment if service tax liability has been created in books and not paid till date. thanks in advance.

TARUN ARORA

TARUN ARORA (Expert)
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18 February 2014 Dear Mr. Bipin,

Your query relates to Sub Clause 3 of Rule 6 of Service Tax Rules, 1994 which is as follows

"Where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason, or where the amount of invoice is
renegotiated due to deficient provision of service, or any terms contained in a contract, the assessee may take the credit of such excess service tax paid by him, if the assessee,

(a) has refunded the payment or part thereof, so received along with the service tax payable thereon for the service to be provided by him to the person from whom it was received; or

(b) has issued a credit note for the value of the service tax not so provided to the person to whom such an invoice had been issued.”

Now there are two cases:

1. When Service Tax has been paid: In this case you can take the credit of Service Tax paid.

2. When Service Tax has not been paid: As per the rule you can take credit of service tax paid i.e. if you have paid (by cash or cenvat) then only you can take the credit so in my opinion you will first have to discharge the liability and then take credit of the same.