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TAX ON ADVANCES

SENDHIL (70 Points)

16 November 2007

If we collect the Advances for the future delivery for a a service is is required the company(pvt lted) to pay the service tax immediately once the payment collected or the service is made????

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6 Replies

Late CA Sampat Jain (Chartered Accountant) (4772 Points)
Replied 16 November 2007

RULE 6 of service tax rules: 6. Payment of service tax [(1) The service tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the calendar month in which the payments are received, towards the value of taxable services: PROVIDED that where the assessee is an individual or proprietary firm or partnership firm, the service tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the quarter in which the payments are received, towards the value of taxable services: PROVIDED FURTHER that notwithstanding the time of receipt of payment towards the value of services, no service tax shall be payable for the part or whole of the value of services, which is attributable to services provided during the period when such services were not taxable: PROVIDED also that the service tax on the value of taxable services received during the month of March, or the quarter ending in March, as the case may be, shall be paid to the credit of the Central Government by the 31st day of March of the calendar year.]

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KAAPIL (COACHING ) (11717 Points)
Replied 16 November 2007

Thanks Sampat Sir.

(Guest)

Dear Sendhil, you have to pay the service tax if the service is not exempted from tax. Provided you have furnish the invoice wise details to department.

K V Subba Rao (Service) (2708 Points)
Replied 18 November 2007

I draw your attention to the following extracted from https://centralexcisetrichy.gov.in/newcentral/tradenotice/st/yr0304/tn24.htm "2. In this regard it may be noted that rule 6 only prescribes the procedure of payment of tax. The liability to tax is created by section 66 of the Finance Act, 1994 as amended from time to time. The liability to pay tax is fastened on the service provider by section 68 of the said Act. These two sections read together imply that service tax is payable by the service provider on the value of taxable services. Thus if a service provided is taxable, tax has to be paid on its value. Section 67 also clarifies value of service as the amount charged for the taxable service by the service provider. In other words, an amount becomes value of taxable service only when it has a nexus with the service provided. That is the reason why the expression used in rule 6 is “value of taxable services” and not amount. The implication is that the tax has to be paid on the value of taxable services attributable to the service provided in a month/quarter as and when it is received. Thus, rule 6(1) can not be read in isolation. When read alongwith the provisions of the Act, it becomes clear that where the value of taxable service has been received in advance for a service which became taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month/quarter which may be worked out on pro rata basis." From a reading of the above, it appears to me that service tax becomes due only when service is rendered and not before.

Dilip Darji (392 Points)
Replied 19 November 2007

Please refer to Circular No.65/14/2003 dt.05/11/03, which clarifies that the advance payment received by the Service Provider, is in connection with the taxable Services and therefore Service Tax is payable on advance received. However such circular has been withdrawn vide Circular No.93/04/2007 dt.10/05/2007. I am doing more R & d on this issue and revert back. In the meantime, if any member has any more material, on this issue, we can very well interact.

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Hari Venkata Ramana (M.Com, AICWA) (124 Points)
Replied 19 April 2008

Service tax is liable to be payable in respect of amount received for services rendered or to be rendered. Therefore Service tax is payable even in respect of amount received as Advance for rendering service in future.