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Service tax on advance money received

Bhavadharani (Final student) (168 Points)

18 August 2008

Hi all,

Can anyone please tell me whether service tax to be collected on the advance amount received on a contract though we have not yet completed the terms of work spelt out in the agreement?

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11 Replies

S.Srinivasaraghavan (Chief Financial Officer and Co) (11318 Points)
Replied 18 August 2008

No, as service would not yet have been provided.

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selvam.T (CA Practice) (49 Points)
Replied 18 August 2008

ADVANCE RECEIVED IS LIABLE TO SERVICE TAX , IF FINAL BILL IS LIABLE TO TAX. SERVICE TAX IS PAYABLE ON AMOUNT COLLECTED AND NOT FILLED.

CA E.A.Ravikumar ( ) (325 Points)
Replied 18 August 2008

Hi,

Till 13th May, 2005, section 67 provided that value of taxable service shall be the gross amount charged for services rendered. The section 67, as amended w.e.f. 13-5-2005, provided that value of taxable service shall be gross amount charged by service provider for taxable service provided or to be provided by him. Explanation 3 was added to this section w.e.f. 13-5-2005, which specifically declares for removal of doubt, that gross amount charged for taxable service shall include any amount received towards the taxable service before, during or after provision of taxable service.

Section 67(1)(i) (as substituted w.e.f. 18-4-2006), also provides for payment of tax on ‘service provided or to be provided’.

Section 65(105), as amended w.e.f. 16-6-2005 starts with words ‘taxable service means any service provided or to be provided’.

After 13th May 2005, service tax will be payable as soon as advance is received, even if service is provided later - view confirmed in MF(DR) circular No. B1/6/2005-TRU dated 27-7-2005 para 27. Till 13th May 2005, the provision was that service tax was payable only when service is actually provided.

Thus, service tax will be payable on advance received also w.e.f. 13th May 2005.

Gopal K Mundhra (Service) (22 Points)
Replied 18 August 2008

Just to add to Ram Kumar's reply from 16-May-2008, even if there is any book entry for any amount in relation to taxable transaction with associated enterprise as defined in 92A of Income tax, service tax is payabl

(Guest)

Hi,

The Finance Act, 2005 has inserted explanation 3 in sec 67 so as to clearify that the Gross amount charged for the taxable service shall include any amount received towards the taxable service received before, during or after provision of such service.

Amendments have been made in section 65 (105), section 67 and rule 6 of service tax rules, 1994 to link payment of service tax with the receipt of payment for the taxable services provided or advance payment received towards taxable services to be provided in future.

In other words, a person is liable to pay the tax as soon as the consideration towards the taxable servide is received.

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S.P.Mahanta (Internal Auditor) (647 Points)
Replied 08 September 2008

When advance received against Service to be rendered is taxable, whether advance paid to GTA ( Transporter) against freight, qualify for Service tax ? or service tax becomes payable only on submission of bill by GTA. Kindly clarify with relevant notification please.

CA E.A.Ravikumar ( ) (325 Points)
Replied 08 September 2008

if your query is - "whether i can utilise input credit based on the advance paid", the answer is yes.

Yashika (Article) (21 Points)
Replied 19 January 2011

do i have to pay the service tax on mobilisation advance?pls tell me

Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 19 January 2011

Yes ST has tobe paid on mobilisationb advacne unless it can be proved that it is in relation to procurement of material. Tribunal decision available for this. However non payment could lead to dispute.

Chinmay (Accounts Professional) (356 Points)
Replied 21 January 2011

The advance money treated as 110.3% i.e. 100% (Basic) + 10.3% (Service Tax).

If you received advance 1,00,000/-*** then,

1,00,000 * (110.3/100) = 90,662/-*** (Assessable Value)

1,00,000 - 90,662 = 9,338/-*** (Service Tax Liability)

Reconciliation will be,

90,662 + 9,338 = 1,00,000/-***

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Jimmy (CA ) (75 Points)
Replied 14 March 2011

From the above replies it is clear that Service Tax is payable on any Advance money received even before rendering of Service Tax.

However my question is whether we need to RECOGNISE REVENUE in the books for advance received against future renderable service because as per AS 9 Revenue is to be recognised when Service is performed and there is reasonable certainty for collection of the same. However in case where Collection is already made but service is yet to be rendered whether revenue is liable to be recognised?

Further in my case it is important to note that taxable invoice for future is already raised though the service is yet to be rendered and money also received.

Please suggestion with justification whether to recognise revenue in above case.

-CA Jimmy Chauhan