service tax to be collected
This query is : Resolved
27 July 2009
Dear Sir
WE are SSI unit with our works and registered office at Rajgangpur Orissa.We had taken up a workorder from Tata Projects Limited based in hyderabad for fabrication and erection of 8 no. Coal Bunkers and 4 fuel Oil tanks at Vedanta Alumium Ltd Burkhamunda, Jharsuguda Orissa in june 2007. According to the workorder and terms of the contract it is clearly mentioned that service tax would be paid extra at the rate of 12.36%.TPL paid us the service tax on our first 2 running bills which we duly deposited with the service tax dept in the respective quarter.In the subsequent running bills TPL stopped paying us the Service tax amount.After repeated queries almost at the end of our completing the work order they informed us that they would only reimburse us the service tax amount after we submit proof to them that we have deposited the service tax amt in advance! We naturally disagreed as the service tax amt is more than 1lac by now and also we would run into legal problem with the servicetax dept.Also there is no guarantee that they would actually reimburse us the amount considering their past dealing with us.This is obviously a ploy on the part of TPL to evade paying the servicetax amount.I want add that there have been deductions including tds and also sometimes for additional bank guarantee retention money plus deduction due to site engineer not agreeing to our weights and calculation and making corrections decreasing the billed value.We have shown the Service tax amt charged separately in all the running bills.
WE are SSI unit with our works and registered office at Rajgangpur Orissa.We had taken up a workorder from Tata Projects Limited based in hyderabad for fabrication and erection of 8 no. Coal Bunkers and 4 fuel Oil tanks at Vedanta Alumium Ltd Burkhamunda, Jharsuguda Orissa in june 2007. According to the workorder and terms of the contract it is clearly mentioned that service tax would be paid extra at the rate of 12.36%.TPL paid us the service tax on our first 2 running bills which we duly deposited with the service tax dept in the respective quarter.In the subsequent running bills TPL stopped paying us the Service tax amount.After repeated queries almost at the end of our completing the work order they informed us that they would only reimburse us the service tax amount after we submit proof to them that we have deposited the service tax amt in advance! We naturally disagreed as the service tax amt is more than 1lac by now and also we would run into legal problem with the servicetax dept.Also there is no guarantee that they would actually reimburse us the amount considering their past dealing with us.This is obviously a ploy on the part of TPL to evade paying the servicetax amount.I want add that there have been deductions including tds and also sometimes for additional bank guarantee retention money plus deduction due to site engineer not agreeing to our weights and calculation and making corrections decreasing the billed value.We have shown the Service tax amt charged separately in all the running bills.
28 July 2009
This is basically a commercial issue. Nothing to do with Service Tax enactment. You have to study what the contract says with regard to reimbursement of taxes and duties (Is there any provision for reimbursement!). If, according to the contrct, you are supposed to provide documentary proof for having remitted the service tax, then you have no other choice. TPL being a TATA group would not like to indulge in such coercive trade practices. Best course of action would be to sit across the table and resolve the issues. TDS under IT Act is a must.
28 July 2009
I am of the opinion that since TPL is entitled to CENVAT credit of service tax on input service, the issue is cost neutral to them. However they must be circumspect as to whether the vendor has paid his service tax. (TPL is entitled to claim input credit only on payment of full amount including tax. Hence I see no harm in giving them proof of payment of service tax on the earlier bills along with a promise that further proof of payment would be given on settling the outstanding dues of service tax
28 July 2009
There is no clause in the workorder/contract stating that service tax would be reimbursed only after verifying that they have been paid in advance.It is clearly mentioned service tax would be paid extra @12.36%.More ever we have already deposited the service tax amount collected on the 2 running bills on which tpl has paid us the service tax amt extra and also submitted proof.I am amazed people are not prepared to believe that Tpl would not be indulging in such unfair trade practices when apparantly it has.Its top official also asked us of the record as to why did will bill the service tax amt in the first place!
28 July 2009
I disagree that this is merely a commercial issue.
Taxation is a creature of law and governed by statutory provisions. Agreement or understaning between the contracting parties has nothing to do with taxation.
The concept of reimbursement of service tax is contrary to statutory provisions in many respect. More over the client may not agree to reimburse service tax paid by utilising Cenvat and may demand a challan resulting in excess tax outflow.
Such a illegal practice is in vague in Government Departments/PSUs. It is surprising to see company of Tata group lack the basic understanding of indirect taxes.
May I put a question. Does any purchaser ask for a challan for payment of VAT/Excise Duty on purchase of any goods. Does any body ask for a challn for payment of service tax before paying the telephone bill.
Since there is provision for payment of Service Tax in the contract, you should seek legal opinion, for tyhe action of withholding payment by the Tatas amounts to breach of contract.
Taxation is a creature of law and governed by statutory provisions. Agreement or understaning between the contracting parties has nothing to do with taxation.
The concept of reimbursement of service tax is contrary to statutory provisions in many respect. More over the client may not agree to reimburse service tax paid by utilising Cenvat and may demand a challan resulting in excess tax outflow.
Such a illegal practice is in vague in Government Departments/PSUs. It is surprising to see company of Tata group lack the basic understanding of indirect taxes.
May I put a question. Does any purchaser ask for a challan for payment of VAT/Excise Duty on purchase of any goods. Does any body ask for a challn for payment of service tax before paying the telephone bill.
Since there is provision for payment of Service Tax in the contract, you should seek legal opinion, for tyhe action of withholding payment by the Tatas amounts to breach of contract.
31 July 2009
The views are educative. We also do have one or two contracts wherein the ser tax is actually reimbursed (Govt. U/T). It is basically as per the contract. Why we have not disputed over this while accepting a contract is a different subject. The fact remains is that some contracts do insist for documentary proof for passing the bills. I agree with Mr Naik. But when marketing wilts under pressure to accepts contracts with such conditions, the best way is to sit across and negotiate with counterparts in taxation rather than taking recourse to legal remedy including arbitration, as they are time consuming as well as expensive. But in this case the solution is easier by way of discussions since the contract does not specify such a condition.
The views are educative. We also do have one or two contracts wherein the ser tax is actually reimbursed (Govt. U/T). It is basically as per the contract. Why we have not disputed over this while accepting a contract is a different subject. The fact remains is that some contracts do insist for documentary proof for passing the bills. I agree with Mr Naik. But when marketing wilts under pressure to accepts contracts with such conditions, the best way is to sit across and negotiate with counterparts in taxation rather than taking recourse to legal remedy including arbitration, as they are time consuming as well as expensive. But in this case the solution is easier by way of discussions since the contract does not specify such a condition.
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