Reversal of service charge

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

25 March 2016 Dear sir,
In respect of labour contract i have issued the invoice i.e.. 200000 service charge plus 29000 ST total 229000/- but the service receiver has accepted the bill I.e.. 190000 service charge plus 27550 ST total 217550/- however i have already deposited the 29000 ST on billing basis now service receiver has given the credit note of Rs. 11450, 10000 service charge and 1450 ST.. please tell me can i reverse the service charge and ST on the behalf of credit note or not....

Regard
Ramesh singh

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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25 March 2016 Yes you can reverse the Service Tax paid in excess. In the ST - 3 Return, show this amount under other deductions (if any). Your taxable turnover for the month will be reduced by Rs.10,000/- and the service tax payable for the current month will be lower by Rs.1,450/-. But there should be a valid Credit Note and not just exchange of correspondence.

Querist : Anonymous

Querist : Anonymous (Querist)

26 March 2016 Sir... plz tell me can i pass the following entry on the behalf of credit note...

Service charge DR... 10000
ST payable DR....1450
To party credit........11450

Sir if i do so.... however some CA has pointed out that if once service is given that service can't be reverse No matter weather payment is received or not..

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Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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28 March 2016 If you see my reply - you are not reversing the service rendered. The invoice has been raised and the service tax paid. Subsequently, a credit note is received, reducing the service charges and accordingly the service tax payable. Suppose the service was rendered in August. The return for the period April to September would have been filed by 25th October. The ST-3 can be revised till 24th January. On 28th January you received the credit note. Obviously the effect has to be given the next return only. So in the month of January you have rendered service of Rs. 100,000/-. You deduct Rs.10,000/- from January Turnover and not August turnover.

However, you have to pass the journal entry you have given, else - the Debtor's ledger will not tally, the Service Tax Payable ledger will not tally, and the turnover of service charges will not tally.

There is no direct link between the service tax paid billwise and the service tax paid on total turnover. The department will only take your total turnover for the period and check whether you have paid full tax. Credit notes issued by debtors go to reduce the total turnover and hence the service tax liability.

Querist : Anonymous

Querist : Anonymous (Querist)

28 March 2016 Sir.. according to your reply if we deduct the Rs. 10000 service charge i think even then deduction of 10000 from the service charge of secound half year return and reversal of service charge based in the credit note is same... No difference seems to be in both the option...

But in my case the bill was issued in the march and the credit note is received in the same month. Plz share your view ...............

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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29 March 2016 In that case show the deduction in the same month. The principle is the same. You are effectively reducing your taxable turnover, but not reversing the service tax paid on the invoice already issued. The ultimate effect is you are reversing the service tax paid - which is not allowed by law, but taking credit fro credit notes received from debtors - which is completely legal and permissible by the Act and Rules.

Querist : Anonymous

Querist : Anonymous (Querist)

30 March 2016 Sir.. assume we have issued the invoice of 1 lakh but i have receipt the debit not of Rs.
11450 i.e 10000 service CH. And 1450 ST, on the behalf of debit Note we will pass the reversal entry....
Service CH. Dr....... 10000
ST. Dr......1450
To party.........11450

Now question for reversal of ST being arries
In that case we will file intimation under rule 6(4) and will claim that excess ST 1450 has been paid which will be adjust from the next ST payment....

Your view plz

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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30 March 2016 The question of intimation under Rule 6(4) does not arise here at all. No excess ST has been paid by you. In view of the liability being paid on accrual basis you had valued your services at Rs.X. the client valued it at Rs.Y and sent you a credit note for the difference - effectively the invoice issued is not part of the turnover, but invoice minus credit note is. Therefore you are neither adjusting service tax paid in advance nor are you reversing the service tax paid. You are just amending your turnover to agree with your books of account.

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Querist : Anonymous

Querist : Anonymous (Querist)

31 March 2016 Ok...Sir. plz let me know the treatment of above subject discussed earlier...