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Service Tax Liability and rates

Vikram (CA) (75 Points)

14 May 2009

I would like to know at what point the ST liability arises to a deductor

(1) Is it on receipt of the money from the vendor on which the Inv was raised?

(or)

(2) Is it based on accrual concept ?- meaning the liabilty arises on the date of raising the invoice

Another clarification,

You must be aware that the rate has been reduced from 12.36% to 10.30% from February 24,2009. My doubt is how do you reckon the application of the 2 rates

(1) Is it based on the work done for a particular month (ie rendering of service). Eg Work done on or before 24/2 to be applied at 12.36% and after that at 10.3%

(2) The remittance date of ST to Govt...

(3) Date of raising invoice? In this case, Suppose Invoice pertaining to february is raised only in April? What is the rate to be applied?

Regds,

Vikram.R

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16 Replies

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 14 May 2009

Query 1: Date of actual receipt of money.

Query 2: There is no provision in ST law which defines "relevant date" for assessment of tax. Ideally it should be date of preparation of invoice.

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Satish (CA Final Student) (479 Points)
Replied 16 May 2009

I disagree with the views of Mr. Rajesh Kumar. The invoice should be raised for two periods - one for the service rendered prior to 24th of Feb and another for service rendered on or after 24th of Feb 09. The rates applecable should be 12.36 and 10.30 respectively. The liability to pay will arise only on receipt against such invoice.

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 16 May 2009

Satish wants to say that dare of rendering service is (or should be) the relevant date of assessment of service tax. The problem with this view is that it is very difficult to define as what is the date of rendering of service. Say a person is doing construction service- on what date he rendered the service. Say in the middle of the construction rate of duty changes- should he calculate as to what part has been constructed earlier and what part later. What should be the basis of this calculation?

Although the chargeability is on rendering of service, we need an exact date for assessment of tax. In my view date of preparation of an invoice is the best date for such purpose.

Satish (CA Final Student) (479 Points)
Replied 16 May 2009

Rajesh, You can refer a telephone bill for February 09 which would be a good example for bifurcation of service between two rates. In your example of construction Service, one should keep in mind that Accounting Standard (AS) - 7 on Construction contracts states the 'Percentage of Completion Method' and on cut off date i.e. 31st March of the financial year one has to arrive at the percentage of completion on that date to recognise the revenue irrespective of whether or not the activity is completed. There is a basic diffenence between Excise law and service tax law. In excise law, the rate of duty on billing date is the rate for chargeability of duty. In service tax case, date of invoice is immaterial. If a service provider receives advance against service and raises an invoice after 3 months of rendering service, the service tax is payable on advance received irrespective of whether or not he has raised invoice on the date of receipt of advance. So everybody, keep in mind to differenciat excise law from that of service tax.

Tahseen Tabassum (CA-FINAL) (644 Points)
Replied 16 May 2009

It means if service was provided before 24th Feb.,09 and the invoice was raised on 9th April 09, then the rate of service tax will be 12.36% not 10.30%.....

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Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 16 May 2009

Well Satish, all tax laws are same.

In every tax law there is a "relevant date", a date on which tax is assessed. It is date of removal of goods from factory, in Central Excise Law. It is date of filing of Bill of entry in Custom Law. It is date if sale in Sales Tax. It is 1st of April in Income Tax. Without a relevant date tax assessment will create many disputes in rate, value, exchange rate etc.

Unfortunately, Service Tax law has not declared any relavant date as of now, so we are discussing. It is precisely to avoid this discussion, we need a relevant date.

Satish (CA Final Student) (479 Points)
Replied 17 May 2009

Tahseen Tabassum, you got it well. Just refer any telephone bill raised for the month of Feb 09 but having bill date somewhere in March 09, you will find 2 rates in that bill - 12.36% for the period prior to 24th Feb and 10.3% for period after that date.

Satish (CA Final Student) (479 Points)
Replied 17 May 2009

Mr. Rajesh, all the tax laws are not same. I have already explained you the difference. I don't know why you r not getting the point? You have mentioned earlier that the 'billing date' is the relevant date for charging service tax. Now you r saying "unfortunately, Service tax law has not declared any relavant date as of now". Now the two statements are contradictory and misleading. It will creat confussion in the mind of person who is seeking advice. So please give a proper & reliable advice to avoide confussion. Thanks

Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 17 May 2009

Thanks for your kind advice Satish. May be you are intelligent enough to understand things, lesser mortals like me cannot understand.

Satish (CA Final Student) (479 Points)
Replied 17 May 2009

Rajesh, don't take in a wrong way. I am in a specialised practice iin service tax for last 8 years and fought number of cases on different issues & came out successfully in those issues. I have cleared my 2nd group of CA Final with distinction marks in indirect taxes that too with the help of Service tax subject. So I have helped you people out in the correct interpretation of law & given you a cool advice to give the correct opinions only.

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Rajesh Kumar (Advocate- Tax) (7806 Points)
Replied 17 May 2009

Well, I am also trying to learn service tax. For 9 years I worked as IRS officer, administrating Custom Excise & Service tax. For last 5 years i am heading a law firm specialising in Custom Excise & Service Tax. The firm is leading some of the biggest litigation of service tax in the country. I have more than 50 published papers, and many in Excise Law Times & Service Tax Review.

I am also trying to learn Service Tax. Nice discussion.

Anoop Balwani (Professional) (84 Points)
Replied 24 June 2009

Well Gentlemen......i would also like to quote my point of view in the above discussion...i support Mr satish in the above discussion...though both Mr Satish and Mr Rajesh are senior and more knowledgeable than me in the field.There is nothing mentioned in the act but with reference to a case law the rate at which service tax is charged is the rate applicable on the date of rendering of service and not on the date of raising of Invoice. Refer Case law 2008 TMI - 4007 - CESTAT, AHMEDABAD..I hope the dispute will be resolved now.

Prafull D (Accountant) (21 Points)
Replied 24 May 2010

Dear Sir

please i want some information about Service tax of Builder/realestate/ construction is in applicable in this business, how much ? how will charge on bill?

Regards

Prafull D

9869962185

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 24 May 2010

Hi Rajesh,

There are only two dates having importance under the service tax law. One is the date of rendering of service and other is the actual receipt of money. Service tax assessed in the hands of asessee on the date of rendering of service. But the actual payment of service tax has to be made to government on the date of actual receipt of it. Thus, it is only administrative facility by the government to make the ST payment when u received the money against your taxable service. Further, if u received advance money against taxable service income, then the service tax has to be paid on the actual receipt of money and not on the date of rendering of service.

There always be a confusion in the practical life that whether the relevant date is the date of invoice or the date of rendering of service. U may refer to Finance Act, 1994 "charging section" which specifies the relevant date of assessment and liability.