Non Payment of Service Tax

Ravi (181 Points)
Replied 10 May 2007

Hi Sumit,
According to amendment in sec.67 w.e.f. 13.05.2005 explanation 3 has been added, which specifically provided that "the gross amount charged for taxable services shall include any amount received towards the taxable service before, during or after provision of taxable service."
Hence after that date service tax will be payable as soon as advance is received & it was confirmed in--Cir No.B1/6/2005-TRU dated 27.07.2005 para 27.

Hence u should deposit service tax on amount received by assuming that amount received is inclusive of service tax. If client is denies the payment u should revise the bill otherwise he will always be your debtors.

The One (379 Points)
Replied 10 May 2007

The One Says:

[b]Please Note: Explanation 3 of the pre-amended section 67 which had come into force with effect from 13-5-2005, and was effective upto 18-4-2006[/b].

Section 67(3) provides that the gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after the provision of such service. Rule 6(1) of Service Tax Rules makes it clear that service tax is payable on value of taxable services received. Thus, if service provider does not receive any payment from his customer, there is no liability of service tax. Service tax is payable only on value of taxable service actually received, and not on amount billed.

If the service receiver does not pay full amount of Bill and pays less amount, reasonable interpretation is that proportionately less tax is payable.

The gross amount charged can be taken as inclusive of service tax and the value and service tax is to be calculated by back calculations.

Rule 3 of Valuation Rules makes it clear that value of taxable service shall be determined by service provider. Thus, responsibility of valuation has been cast on service provider. You seem to have the proper documentation with you should file the same. (Rate of Service Tax is 12.24%) Therefore here given the amount of Rs.62000 Service Tax would be Rs. 6761.25 & Value of the Taxable Service would be Rs. 55238.75.

If further amounts are unrecoverable then, reverse the bills otherwise Sec. 67(3) would apply. Can't remember any case law off hand but there is a case law with regard to back calculation relating to Customs duty - if I come across it will let you know.

Other opinions are welcome. Hope this is of use to you Sumit.

Sumit (CA Practice ) (675 Points)
Replied 10 May 2007

Hi The One

thankyou for giving such reply.

Interprating the above, it means that We have to pay service tax of Rs.6761.25/- on the total amount of Rs.62000/-.

It means that The letter of the Director of the organisation(Govt. Organisation), admitting that they withheld all payments with respect to Service Tax is useless. Am I right? Can we take any action against the organisation for default of payment of Service Tax.

One more thing I want to tell you that at the time of agreement of the contract, all charges i.e. wages, p.f., e.s.i., service charges and service tax have been seperately mentioned in the agreement.

Kindly reply

Thankyou.

Sumit Aggarwal

The One (379 Points)
Replied 10 May 2007

The One Says:

Its always a good policy that you have proper and complete documentation. The reason being rule 4 authorizes Central Excise Officer to reject the value as determined by the service provider and determine the value, after following principles of natural justice.

To avoid this you need have proper documentation and invoicing as per Rule 4A & Sec 12A (Central Excise). File these documents along with you return to demonstrate how you have arrived at Value and Service Tax thereon. If you have the necessary documents then you can produce these as and when required.

As for separately showing the details that is a requirement you should also show Education Cess seperately in the invoice. If service tax is charged at 12.24%, department may ask you to pay further 0.24% amount. (TR6 appropriate account heads)

From your original post it appears that the service receiver has not paid amounts including PF ESI and Service Tax - this being part of the original bill for which they have received service you can pursue the legal recourse but negotiations are often better. My dear friend Sumit I am not specializing in Tax Matters more into Audit ..... therefore cannot provide you with advice on suing these guys but generally speaking negotiations are the way to go.

Sumit (CA Practice ) (675 Points)
Replied 10 May 2007

Hi The One

Thanks for giving such a useful reply

Sumit Aggarwal

The One (379 Points)
Replied 10 May 2007

The One Says:

Glad to be of assistance.

Hgmi U (28 Points)
Replied 10 May 2007

I found something relevant to your querry in one of the FAQs[b]
Is the service tax payable by the assessee even in cases where his clients do not pay for
the service(s) rendered or when the client pays only a part of the bill raised in this regard?[/b] :o
Service tax is required to be paid only on the value of taxable service received in a particular
month or quarter as the case may be and not on the gross amount billed to the client. However in
all [b]such cases when the amount received is less than the gross amount charged / billed to the
client, the service tax assessee is required to amend the bills either by rectifying the existing bill
or by issuing a revised bill or a credit voucher/ note and by properly endorsing such change in
the billed amount. In case an assessee fails to do so, his liability to pay service tax shall be on the
amount billed by him to the client for the services rendered.[/b]
Better course of action in your case may be to not to give the breakup of service tax to your client.

[quote=1104]Hello Friends

Hoping for an answer to this question. Kindly give answer with reference to the relevant provisions of the Service Tax Act or Decided Cases.

We are providing the Service which comes under the ambit of Service Tax. We are already registered with ST Deptt. and depositing the service tax regularly to them.

I am giving below the details of the bill raised by us and submitted to our clients:
Eg:                 All figures are just the approximates not real

Wages                                 : Rs.50000
P.F.                                      :  Rs.6000
E.S.I.                                   : Rs.2000
Service Charges                  : Rs.12000
Total of above                    : Rs.70000
Service Tax on above         :  Rs.8400
Total Amount of Bill             : Rs.74800

Now the Director of one of our clients  has issued an order to their Accounts Department to withheld all payments in respect of P.F. & E.S.I. and Service Tax in relation to all contractors providing services in that Organisation.
We have the copy of this order.

They are passing the bill of only Rs.62000/- (i.e. 50000+12000).

Now as per Service Tax Rules, a person has to deposit the Service Tax on receipt basis i.e. in case he received any amount of money from the client he has to deposit the part of service tax to the ST department.

Now my question is whether we are required to deposit the service tax to the ST Deptt. against which we have not received any money or we have to deposit the proportionate amount. We also have the proves in the form of letters issued by them to us in which they are admitting that they are not paying us the service tax, P.F. and E.S.I.

Kindly help me on this matter. Can you also give reference of any legal decision which is alike this.

Thanks and hoping for reply.

Sumit Aggarwal

[/quote]

The One (379 Points)
Replied 10 May 2007

The One Says:

[quote][b]hg.m.i4u wrote:[/b] Better course of action in your case may be to not to give the breakup of service tax to your client.[/quote]

Dear friend with due respect to what you have stated wouldn't it be counter-productive if service tax break up is not given to the client (through invoice) which is exactly what the FAQ warns against. I would think that what ever is the amount received for service provided would be the amount inclusive of service tax as is supported by the rules and therefore the need for back calculations and rectification & endorsement of modified invoices.

Please give details as to why you suggest not giving break up and how this would be beneficial.

Hgmi U (28 Points)
Replied 10 May 2007

Yes. I understand it is mandatory to separately indicate the amount of service tax charged in the Bills/
invoices raised on the clients as per Section 12A of the Central Excise Act, 1944 which is made
applicable to Service Tax, under Sec.83 Such mention would facilitate the service receiver to avail the eligible credit of the Service Tax paid on the input services.
but in this situation Receiver of service as denied the payment which means he does not want to avial the cerdit which is fine with him. But as far as service provider is concerned he has to make the payment for service rendered and so what do you think he has to do in this situation.

The One (379 Points)
Replied 10 May 2007

The One Says:

hg.m.i4u thanks for providing a clarification of your opinion.

The break-up must be provided in the invoice. This is independent of the fact what the receiver wants to do. The rules relate to the invoice of the service provider.

Now, in this situation where amount of service tax is not received the rules would interpret them as the total amount being received as proportionately less. This in turn leads to back calculations and therefor the need for rectification of invoice. If this is not done then there wouldn't be proper documentation to support the amount of service tax collected & paid.

This is my opinion - lets keep the discussion going.

abhay (accountant) (26 Points)
Replied 14 November 2009

Originally posted by :
"	Hi Sumit,According to amendment in sec.67 w.e.f. 13.05.2005 explanation 3 has been added, which specifically provided that "the gross amount charged for taxable services shall include any amount received towards the taxable service before, during or after provision of taxable service."Hence after that date service tax will be payable as soon as advance is received & it was confirmed in--Cir No.B1/6/2005-TRU dated 27.07.2005 para 27.Hence u should deposit service tax on amount received by assuming that amount received is inclusive of service tax. If client is denies the payment u should revise the bill otherwise he will always be your debtors.	"