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Service tax

Vedika (Article) (32 Points)

02 April 2014

I do have one query regarding service tax.Two parties went into an agreement for advertisement where one is the service provider and another is the receiver.The SP has been paying the service tax and almost half of the payment as per agreement has been done.But now authority has sent the letter mentioning that the mentioned service is "Sponsorship" not the "advertisement" so reverse charge is applicable.How to solve this matter because SP has already paid half of the service tax? Is the receiver required to pay the whole of the tax or just remaining 50% ? Will the SP get refund from the department?Who will claim the input and in what way ?

Please help....

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2 Replies

CA Chandrashekar L (Practicing Chartered Accountant) (245 Points)
Replied 02 April 2014

Dear Vedika,

First you have analyze the exact nature of the service based on the nature of service received along with the available document/ Agreement.

Secondly if it is in the nature of Sponsorship service check whether RCM is applicable. (Since you have not mentioned the status of the Service Provider & Service Receiver)

(A) If the service is Advertisement Agency service:

Write a reply letter to the department to substantiate the service is in the nature of Advertisement Agency Service.
If department accepts the same it is advisable to get it in writing for the same.
After that pay remaining due to the service provider.
There will be no liability on service receiver under RCM.

(B) If it is Sponsorship Service subject to applicability of RCM:

First you have to discuss with the service provider to know the reason for charging the service tax in the invoice when there is liability on the Service Receiver to pay 100% of service tax liability under RCM for the said service.
Under RCM for Sponsorship Service, Service receiver has to pay 100% of service tax liability without utilizing the CENVAT credit.
When there is liability to pay service tax is on the service receiver than there will be no exception from such liability simply because that he has paid service tax to the service provider.
Service recipient paying the service tax under RCM may take the CENVAT credit of service tax paid by him.
However you can recover the service tax portion paid to service provider on the amount already paid by you along with the proper/corrected invoice.

Thanks & Regards,

CA Chandrashekar L

1 Like

Vedika (Article) (32 Points)
Replied 03 April 2014

Thanks a lot for the information.Also i would like to know that the service provider has already deposited the tax with the government.Then can the SP get refund from govt.?