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Query on Service tax

rajeshkn (CEO) (66 Points)

01 March 2009

Dear Sir / Madam,

We are a website design & application development company doing job work for various clients in India.

Our work includes, design of web pages & development of web based applications.

Can someone clarify, if the job done by us comes under the service tax net? OR is only a portion of our work (web designing) covered under service tax & application development not covered?

Can someone kindly advise?

Regards,

Rajesh

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10 Replies

SIDDHARTHA SANKAR ROY (Government Servant -MOF) (868 Points)
Replied 01 March 2009

Web designing will come under " Design Service" which has been made taxable from 01.06.2007 and development of software would be convered under " Information Technology software service" which has been made taxable from 16.05.2008.

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rajeshkn (CEO) (66 Points)
Replied 01 March 2009

Many thanks Sir.

I would like to explain a bit. We donot develop any software like "Tally" (example) which is desktop based BUT we develop applications.

To explain a bit more, we develop forums like the ones in which we are discussing now or newsletter management. The site belongs to CA club but the development using open source tools is ours. Does that coime under Service tax?

We have not been billing / collecting service tax for these application development so far BUT have been collecting for the design services & promptly remitting.

If this is also taxable, can you kindly guide on how & what should be done?

Again my thanks for your response.

Regards,

Rajesh

SIDDHARTHA SANKAR ROY (Government Servant -MOF) (868 Points)
Replied 01 March 2009

I am no expert in IT but what I could understand is that you are develping web applications as many programmers develop applications for social websites like 'Orkut' and ' Face Book' etc. Regarding qualification of software develped by you as Information Technology Software or not I am quoting the relevant definition

" Inforamtion Technology Software" means any representation of instructions, data, sound or image, including source code and object code, reconred in a machine readable form, and capable of being manipulated or providing interactivity to a user, by means of a computer or an automatic data processing mahcine or any other device or equipment".

Now you judge it for yourself whether applications develped by you qualify as nformation Technology Software.

If you think it is taxable and you have not collected and paid the dues my advice would be that you should assesse your duty liability as soon as possbile and pay all your dues along with interest for late payment @ 13% before the department serves you any demand notice which would save you from penalty which may go upto twice the amount of service tax not paid.

rajeshkn (CEO) (66 Points)
Replied 01 March 2009

Sir,

I think you have pointed it right.

Post this clarification, we shall send the revised bills to all these clients, collect & remit. I thknk thats the right thing to do. Since we were not aware of the change in law sine May 2008, this confusion.

Thanks for your valuable time & advise.

Regards,

Rajesh

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rajeshkn (CEO) (66 Points)
Replied 04 March 2009

Sir,

I have a question.

I have done the sorting of bills BUT have come up on a unique situation, which I thought would take some advise on.

There are aboout 5 bills which fall in the application development category that have not been billed with service tax / collected & remitted.

As I go a bit more in to that, all these bills are in the month of April 2008 for which development has happened through 2008/09, few are still continuing & we are receiving payments in phases.

Since these have been billed in April 2008 (which is prior to the change in LAW - May 2008), wont these be exemot from service tax? I was asked this question by a client whom I had contacted for collection of service tax due, who was refusing to pay citing the above.

Kindly offer your expert advise so that I get in to the act immediately (tomorrow being the last date for payment of service tax).

Regards,

Rajesh

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Ketan (Service) (31 Points)
Replied 04 March 2009

As reduced service tax rate by 2% from 24/02/2009, however some body charged to us @ 12.36%, so what we have to do? we have to pay by 10.30% or 12.36%. Please advise us

SIDDHARTHA SANKAR ROY (Government Servant -MOF) (868 Points)
Replied 04 March 2009

Originally posted by :Ketan
"	As reduced service tax rate by 2% from 24/02/2009, however some body charged to us @ 12.36%, so what we have to do? we have to pay by 10.30% or 12.36%. Please advise us	"

If the service for which the bills have been raised were rendered before the date from which the rate was reduced then it is proper on the part of the service provider to charge @ 12.36%. However, if the services have been rendered after the dated of reduction in service tax rate, they should charge at reduced rate.

SIDDHARTHA SANKAR ROY (Government Servant -MOF) (868 Points)
Replied 04 March 2009

Originally posted by :rajeshkn

Sir,
I have a question.
I have done the sorting of bills BUT have come up on a unique situation, which I thought would take some advise on.
There are aboout 5 bills which fall in the application development category that have not been billed with service tax / collected & remitted.
As I go a bit more in to that, all these bills are in the month of April 2008 for which development has happened through 2008/09, few are still continuing & we are receiving payments in phases.
Since these have been billed in April 2008 (which is prior to the change in LAW - May 2008), wont these be exemot from service tax? I was asked this question by a client whom I had contacted for collection of service tax due, who was refusing to pay citing the above.
Kindly offer your expert advise so that I get in to the act immediately (tomorrow being the last date for payment of service tax).
Regards,
Rajesh

From your query it appears that you had raised the bill and received the payment in advance in the month of April 2008 i.e, before the date of imposition of tax on " Information Technology Service" and the service was actually rendered throughout 2008-09. In such case you have to pay service tax propotionately on the value taxable service which was rendered after the date of impostion of tax on your service.

Also, you have to pay service tax for payment received agaisnt the services provided by you even if you have not charged or collected service tax. Calculate tax considering the value/payment received as price-cum-duty.

rajeshkn (CEO) (66 Points)
Replied 05 March 2009

Dear Sir,

Thanks.

Now I have completed the complete audit of all bills for the year & have arrived at the figures. However, I am faced with 2 issues now.

ISSUE 1:

Out of the many bills that we have raised, collected service tax, remitted, there are about 12 (twelve) bills for which the service tax has been collected BUT the same has NOT been remitted due to oversight. Such bills are present since April 2008 till Dec 2008 (not pertaining to any single month BUT spread across). How do we set right this issue? Do we just pay it up OR is there any penalty?

ISSUE 2:

There are few bills that have been raised on clients for which we have received ONLY advance payments & no service has been offered so far for want of information from clients / feedback etc., etc., We have not remitted any service tax on such cases as the service has not been rendered & the invoices are still open & payment from clients are still due? I am told that service tax is payable ONLY on completed service / payments received in full & is not payable on part payments? Is this correct? OR should proportionate tax (to the extent collected) be paid on that as well despite the fact, service is not completed.

I sincerely appreciate / thank you for your valuable time in guiding me on this situation & look forward to your valuable advise on both the above issues.

Regards,

Rajesh

SIDDHARTHA SANKAR ROY (Government Servant -MOF) (868 Points)
Replied 05 March 2009

Issue-1: Pay your unpaid service tax along with interest @ 13% for the number of days delayed.The interest should be calculated from the date of receipt of payment upto the date of making service tax payment.

Issue 2: With effect from 16.06.2005, service tax should be paid even if the advance is received for the services to be provided.So, similarly calculate your service tax liability on the advances received and pay along with interest. If no service is provided against these payments received in advance, then there is provision vide which you can adjust it with your service tax liablity for subsequent period or you may claim refund also.