A company which is providing services under "Works Contact" raises an invoice for say Rs 100. The client makes payment of Rs 95 after deducting 5% security as per contractual aggrement. [Provisions of TDS under Income Tax are ignored for simplicity]. This security amount will be paid when prject is completed 100%.
Now , under current regime of Sevice Tax , Company will be liable for ST on Rs 100 undoubtedly. However under Cash system of Service Tax that was applicable before 1/4/2011 if such a bill was raised , ST lliability was only on Rs 95 as recieved.
My query is that the company has such Security standing as its Receivables as on date and has not paid any ST on such amount. Is the company correct that liability on such amount will arise only when it is recieved. Please provide reference to Sections/Rules/Cases in support of answers. Thanlks
Service tax on security deducted in case of works contract
Peeyush Kumar Ramuka (Senior Transaction Tax at EY) (42 Points)
14 July 2014
CAclubindia
