Invoice not showing service tax separately

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2015 Dear sir,

We are into the business of cosmetics treatments , where service tax is applicable @14% .

WE came to know that one of our competitors is issuing invoices where service tax is not shown separately.

(1)They are showing TIN number on the invoice but not service tax number.
(2) There is a statement on bottom of invoice : Amount paid inclusive of taxes as applicable.

(3) As per one insider they pay partial service taxes as they divide revenue into material and service. And pay pay service tax on service part only.

(4) Please enlighten me , is their method legally correct ?

Thanks in advance.

Sandeep Jadhav

Sandeep Jadhav (Expert)
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04 August 2015 yes,

it is legally correct,

When the Service Tax not shown separately then it is assume that it is inclusive of taxes for service receiver in so Service receive has to calculate the backward calculation to get service tax amt.

Message likes : 1 times

Sandeep Jadhav

Sandeep Jadhav (Expert)
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04 August 2015 and other point is that service tax must be charged on service part only and vat on material value only subject to certain condition.

Message likes : 1 times

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Querist : Anonymous

Querist : Anonymous (Querist)

04 August 2015 Thanks Mr. Jadhav.

Can someone issue invoice mentioning "inclusive of applicable taxes" and then not paying 14% service tax on whole amount by splitting amount into material and service ?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 No, issuing an invoice mentioning "inclusive of applicable taxes" and then not paying the full applicable service tax by splitting the amount into material and service to reduce tax liability is not compliant with tax regulations. This practice can lead to serious legal and financial consequences.

### Key Points to Understand:

1. **Transparent Tax Calculation**: When you mention "inclusive of applicable taxes," it implies that the total amount includes all taxes due. The tax authorities expect you to correctly calculate and remit the tax based on the total amount billed.

2. **Tax Splitting and Misrepresentation**: Splitting the amount into material and service components to reduce the tax burden, especially if done after issuing an inclusive invoice, can be considered tax evasion. This practice misrepresents the taxable value and can attract penalties.

### Proper Way to Handle Invoicing and Tax Calculation:

1. **Clear Breakup of Charges**: When issuing an invoice, provide a clear breakup of the charges. Separate the material cost from the service charges and calculate the applicable taxes on each component accordingly.

2. **Applicable GST and Service Tax**:
- Under the current GST regime in India, which replaced service tax from July 1, 2017, you must comply with GST rules. Ensure you are charging and remitting the correct GST rates on both goods (material) and services.
- Prior to GST implementation, service tax was applicable. If you are dealing with invoices from before this period, ensure you follow the correct service tax regulations that were in place at that time.

### Example Invoice Structure under GST:

#### 1. Invoice with Clear Tax Breakup:
```plaintext
==============================
[Your Company Name]
[Your Company Address]
[Your Company GSTIN]
Phone: [Your Contact Number]
Email: [Your Contact Email]

Invoice No: [Invoice Number]
Date: [Invoice Date]

To,
[Customer's Name]
[Customer's Address]
[Customer's GSTIN]

Description of Goods/Services:
------------------------------------------------------------------------------
| S. No | Description | HSN/SAC | Quantity | Unit Price | Total Amount|
|-------|-------------------|---------|----------|------------|-------------|
| 1. | Material Cost | [HSN] | [Qty] | [Rate] | [Amount] |
| 2. | Service Charges | [SAC] | [Qty] | [Rate] | [Amount] |
|-------|-------------------|---------|----------|------------|-------------|
| | Total | | | | ₹[Total] |
------------------------------------------------------------------------------

Tax Calculation:
------------------------------------------------------------------------------
| Tax Type | Rate | Amount |
|------------------|---------|---------|
| CGST | [Rate]% | ₹[Amt] |
| SGST/UTGST | [Rate]% | ₹[Amt] |
| IGST | [Rate]% | ₹[Amt] |
|------------------|---------|---------|
| Total Tax Amount | | ₹[Total]|
------------------------------------------------------------------------------

Total Amount Payable: ₹[Total Amount Payable]

Terms and Conditions:
1. Payment due within [Payment Terms].
2. Any disputes are subject to [Your City] jurisdiction.

Authorized Signatory
[Name]
[Designation]

==============================
```

### Steps to Ensure Compliance:

1. **Issue Correct Invoices**: Always issue invoices with a clear breakup of charges and applicable taxes.
2. **Remit Accurate Taxes**: Calculate and remit the correct taxes based on the applicable laws, whether it is service tax (for periods before GST) or GST.
3. **Maintain Records**: Keep detailed records of all invoices, payments received, and taxes remitted. This is crucial for audits and compliance checks.
4. **Consult Professionals**: Work with tax professionals or consultants to ensure your practices are in line with current regulations and to avoid any inadvertent non-compliance.

By following these guidelines, you can ensure that your invoicing practices are transparent and compliant with tax regulations, avoiding potential legal and financial issues.