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Service tax on Advance payment received

shruti (CA) (80 Points)

09 April 2009

We receive quarterly advance payments from our members to whom we provide maintenances services. Service tax is applicable on these receipts. We also take the Cenvat Credit of these services which we have outsourced it to different agencies. The credit period for payment to these agencies is 30 days so the payments for service for April will be made on 31st May or 1st June. But we have collected the advances from members for April May June in the month of April.What is our Service tax laibility as on 30th April (for the month of April only or for the full quarter) secondly I would get the Cenvat credit for the same service in the month of May or June. So how do I adjust the two. Will I have to make the service tax payment for April since no Cenvat is available in April

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6 Replies

Jyoti Malik (ACCOUNTANT) (2644 Points)
Replied 09 April 2009

Hi Shruti As per your Query If you received the payment ( it may be advance) you are liable to pay the Service tax . But Cenvat Credit is adjusted after making payments to your vendors.

As you know the Service tax is on payment basis.

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Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 09 April 2009

Dear Shruti,

First of all if your client is a clubs / association please ensure that the payments are made under protest as the question of whether one can provide service to oneself is not resolved judicially under service tax.

ST is payable on advances. Therefore you may have to pay in cash. Next quarter the credit could be used. The issue on whether ST can be collected on advacnes as per some experts requires constuitutional amnedment since entry 92 C only talksh of tax on services provided and not for those to be provided. Presently preferable to pay.

shruti (CA) (80 Points)
Replied 09 April 2009

Thanks Madhukar

Yes we are a Residents welfare Association, which offers Maintenance and upkeep services to the residents. After a lot of deliberation it was concluded that since are monthly receipts exceeds Rs. 3000pm we are taxable under service tax sec 65(105)(zzze). We have outsourced these services like security, Housekeeping, Maintenance, Horticulture to different agencies. We collect from residents and pay to these agencies who charge service tax on their bills. Hence end to end we do not have to pay any service tax as the CENVAT from agencies covers it. But it is the cash flow model (credit period) that is affecting and is requiring us to pay Service tax. This in turn is affecting our cash flow planning.

Can some how this be solved?

Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 10 April 2009

Dear Shruti,

AS I can see the only solution is to see if the security, houskeeping etc provided by the 3rd parties per month if taken as reimbursment only and the other services provided separately and if the other services are less than 3k per m then the exemption itself would be available. Care to be taken to see that the condition in 5(2) of the STVR are met.

Pankaj Mittal (CA) (58 Points)
Replied 20 March 2010

Dear Madhuker,

In contineuation of the above quarry, pl. guide me if I am a pvt. ltd. co. and provide security service and housekeeping service to a trade association in which about 80 shops are there, both service charges decided sepretely like for security service Rs. 1,70,000/- P.M. and for House Keeping Rs. 60,000/- P.M. Can we charged service tax on both the services?