Excess service tax claim with client - service tax return

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bheema rao (Querist)
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14 March 2015 Dear Sir,

We have a Construction Contract - Item Rate with our Client for execution Building Project.

As per the Contract, Service Tax is limit as CAP for Rs.13 Cr. And service Tax @4.944% on Basic. Basic item rate is inclusive of VAT.

Recently there is an issue with our Client regarding increase of item basic rate. Then Client is saying that if basic item rate is increases, then excess Service Tax implication will come on us like that.

Then our Management has agreed and confirmed that excess Service tax amount whatever comes beyond the CAP amount by end of the project, the same will borne by us.

For this, Client is asking the procedure note / write-up note for this and questioning us what way the same you will show in your Service Tax Returns. And How we have to show the same in our (Client) ST Returns?

For this, we have informed to Client, as Contractor we are issuing the Tax Invoice. So, we have to discharge the ST liability to the Department. But we will issue the Credit Note to client on different account like "Being Credit Note Issued for excess CAP of Service Tax". And also inform them anyway you (Client) cannot utlise the CENVAT credit for this excess Service Tax and this cost to you only. And the same credit note you can account in your books of accounts and take the credit to reduce the cost.

Sir, Hence this is request to you that please go through with the above issue and give your valuable advise & suggestion on the above matter.

Thanks & Regards

Bheema
Bangalore

Rajesh Sharma

Rajesh Sharma (Expert)
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16 March 2015 Hi Bheema,

You have a unique problem, generally either the rates are all inclusive of taxes or they are qouted as extra over and above the basic rates.

Alternative to your scheme of adjustment, you can raise service tax only to the extent of CAP as mutually agreed and rest amount you bill the amount inclusive of service tax without mentioning the bifurcation. This will help you to lower your tax liability, since the amount of bill will be inclusive of Service tax. Further, the client will not be able to take credit as service tax is not charged & show the amount of service tax paid as an expense item in P&L to show, you have paid it from pockets and not recovered from the clients.

When you charge service tax separately, the wordings of not available for Cenvat credit does not have any meaning.

Regards

Rajesh Sharma
nspandcompany@gmail.com
+91 99 205 345 95