Service Tax Querry - Urgent - Service Tax

Kkamlesh (CA) (94 Points)
Replied 13 April 2010

Hi,

I can tell u abt the applicability of ST.

ST is applicable from ur registration itself though u have not exceeded the 10L threshold.

that means u r liable to pay ST on receipt basis irrespective of the fact that u have not collected it from ur clients through billing

In ur case u should have paid ST in the last year as ur registration was already done.

now if u want to pay it, it will attract interest on the amount of liability u had not paid.

for proceedures i will suggest u to go to ur CA. (may be a different one if u r not satisfied by the services of old one!)

Ankit (CA) (45 Points)
Replied 13 April 2010

sorry KKamlesh what you r said is not the correct position of Law,as per Section 68 of Finance Act 1994 the Person is liable to pay service tax only if Gross Receipt From Taxable Service exceed 10L, the liability of reg. arised when Recepit Exceed 9Ls ,so in given Case Amit your are liable for reg. that you have done alrady and what your CA is doing i.e. filling NIL return is as per law, just reg. does not make you liable for payment of Service.

Harish Arora (Chartered Accountant) (52 Points)
Replied 13 April 2010

Ankit is quite right. The service tax liability arises in case in the previous year the Service income exceeded Rs.10L figure.

And in your case as you rightly been said that you are charging service tax from the very first day of Apr 2010 is correct.

Kkamlesh (CA) (94 Points)
Replied 13 April 2010

thanks both of u!!!! i made a mistake

but i would like ur attention to the 10L threshold which is for the value of taxable service provided & not for value collected

so its like business done in the year & not recovered

thanks once again

Amit (ES) (44 Points)
Replied 13 April 2010

Dear Ankit, Harish

Thanks a lot for the replies.

To give you a background. I got registered for Service Tax long time back. I charged and paid Service Tax for 2004-05 , 2005-2006, 2006-2007. The The Exemtion limits were increased to 8 lacs and 10 lacs so I was under exemtion limit and I was not charging / paying service tax for 2007-08, 2008-2009, 2009-10. We regularly filed nill returns for this period.

So the question remains. Am I liable to pay any Service Tax for the year 2009-10 ?

2 Possibilities come to mind.

1. Should I pay Service tax on the Total Invoiced Amount in 09-10 (Rs 10,10,000) - Exemption 10,00,000 = 10,000. Although Rs 1,20,000 out of the invoiced amount is still outstanding.

2. When I receive the outstanding Rs 1,20,000 from invoice raised in Nov 2009 (FY 09-10) in the current year 20010-11, will I be liable to pay service tax on this amount. I did not charge the client Service Tax as in Nov 2009 my Service turnover was just around 6 lacs. Will I have to pay the Service Tax on this amount from my pocket at the time of receipt ?

I am charging Service Tax on all invoices of the current Year.

Amit

SUCHINDRA PARE (Lawyer) (80 Points)
Replied 13 April 2010

Dear Amitji

In my opinion (as i had gone through various provisions of the service tax referring to your problem) you are not liable to pay any service tax.

Service tax is charged on receipt basis and not on accrual/invoice basis. Since your total receipt in the year 2009-2010 does not exceed 10 lakh limit (i.e. 8,90,000 + 85,000 = 9,75,000) you are not liable to pay any service tax for the said period.

As you have mentioned that you have started collecting the service tax from April 1, 2010 from your customers. In this regard I think you should refund the service tax collected from your customers as you are not liable to pay any service tax now and have yet not crossed the threshold limit of 10 lakhs. If in the year 2010-2011 your total receipts cross the 10 lakh mark then the excess of 10 lakh shall be chargeable to service tax but as of now you dont need to pay any service tax.

Harish Arora (Chartered Accountant) (52 Points)
Replied 13 April 2010

Agrred with Suchindra.

But to add, If you are paying the service tax for this fiscal year i.e 2010-11, there is no problem in paying becuase if you charge service tax from your clients then in that case you would be able to claim the Cenvat Credit of the service tax paid on your vendors's bill which will be adjusted from your service tax liability/

You would be benefited if you charge Service tax becuase you would be able to claim the service tax which you have to your vendors.

Amit (ES) (44 Points)
Replied 13 April 2010

Dear Suchindra Pare Ji, Harish

Thank you so much for the clarification. You have releived me of a lot of tension.

As my clients have no problem in Paying Service Tax, I think from April 1st 2010 I will keep charging them Service Tax and pay to the Govt. I will also be able to take Credit of the Service Tax that I pay.

Now just One last querry. I will be receiving Balance Payment for the 1,20,000 for the Invoice of Last year. I did not charge the Client Service Tax at the time I invoiced him. When this payment is received this year, and I am charging Service Tax this year, am I liable to pay Service tax on this amount from my pocket ??

Thanks for all your help

Amit

Harish Arora (Chartered Accountant) (52 Points)
Replied 13 April 2010

If you have sent the invoice in the previous year itself then no need of paying service tax on this amount now.

Otherwise if you have to raise invoice this year for this Rs. 120000/- then preferably you have to charge ser tax on it.You can do it by grossing up the amount of 120000

Dhruv (Chartered Accountant) (308 Points)
Replied 13 April 2010

Since the amount you're going to receive is applicable to service tax, as per the discussion above. If the amount on receipt does not have a separate service tax component or you haven't charged service tax on it separately, the amount will be considered as inclusive of service tax, which is known as grossing up.

The amount inclusive will be calculated as under (since service tax is payable at 10.3%)

(120000 * 10.3)/110.3 = 1087.84

The amount 1084 will be service tax payable, and your income recognized wil be 120000-1087.84 = 118912.15.

Dhruv (Chartered Accountant) (308 Points)
Replied 13 April 2010

And..it does not matter when the invoice is raised, unless it was raised at a time when exemption was applicable, if it was not. The date of receipt matters, since service tax is calculated on receipt basis.

Amit (ES) (44 Points)
Replied 13 April 2010

Originally posted by : Dhruv
	Since the amount you're going to receive is applicable to service tax, as per the discussion above. If the amount on receipt does not have a separate service tax component or you haven't charged service tax on it separately, the amount will be considered as inclusive of service tax, which is known as grossing up. The amount inclusive will be calculated as under (since service tax is payable at 10.3%) (120000 * 10.3)/110.3 = 1087.84 The amount 1084 will be service tax payable, and your income recognized wil be 120000-1087.84 = 118912.15.

Hi Dhruv,

Thanks for the reply, but I think you made a calculation mistake.

Service Tax was not mentioned as a seperate item in the invoice in Nov2009, as we were not charging Service Tax then. My CA has also told me that the liability of Service Tax is on receipt. So we will have to pay it at the time of receipt from our own.

I guess the 1,20,000/= receipt in June 2010 as balance outstanding against Invoice raised in Nov 2009 will be taken as 1,08,794.20 + 11205.80 (10.3% of 108794.20) = 1,20,000/=

And we will have to pay this 11205.80 as Service Tax.

I guess we can not take it as the 10 lac exemtion limit of the last year because the receipt is in this year.

Please confirm

Regards

Amit Kalra

SUCHINDRA PARE (Lawyer) (80 Points)
Replied 13 April 2010

Dear Amitji

Your both of the contentions are correct..

Firstly the calculation done by you is right...(and the one done above is wrong). you will have to pay this 11205.80 as Service Tax.

And the the receipt of 1,20,000 cannot be taken to calculate the 10 lakh limit of last year .

So i think all your problem has ended now

Dhruv (Chartered Accountant) (308 Points)
Replied 13 April 2010

Oops! I just made a calculation mistake while calculating the amount multiplying it by 10.3 and dividing by 110.3 will give 11205.80 which is the service tax amount due.