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“Online” - the most used word in modern world; whether it is a “person” or a “procedure”, everyone and everything is online now. Compliance procedures of most of the legal provisions have become online, somewhere it is optional and somewhere it is mandatory. In the service tax too, concept of online filing of return was first introduced for big taxpayers; w.e.f. 1.10.2011. Since then, the service tax return utility has been a classical example of both efficient data compiler and technical hurdles. The Service tax which itself is so much complicated containing a plethora of provisions, becomes scarier when a rate change takes effect. This becomes even more mind boggling when the rate change happens in between of a year. The after effects of this rate change proved a pain most when filing the service tax return. This article explains this pain of tax payers.

Analysis of legal provisions:-

The change in rate of service tax is the most complicated thing faced by the assessees. Last change in the service tax rate was in the year 2012-13 which was perhaps the most complicated change as there was transformation of service tax law by way of introduction of negative list concept. However, since then, things have simplified much as the transitional period has passed. Here, in this article, we are talking about the effect of rate change while filing the service tax return online. Before coming to the point, it would be better to discuss the provisions applicable in case of change in the rate of service tax. According to Point of Taxation Rules, 2011; if any advance is received against a service to be provided in future, the service tax is to be paid at the time of receipt of such advance. However, if the service is not yet provided and invoice is also not issued and there is change in rate of service tax; the service tax has to paid on the entire value as per new rate. Thus, the advance on which tax was earlier paid with old rate; will now be subject to new rate. This can be understood with the help of following example:-

Advance Received                         Rs. 50000/-

Date of advance                             1.4.2015

Service tax rate                               12.36%

Service tax paid on 5.5.2015      50000 * 12.36% = Rs. 6180/-.

Change in rate of service tax       1.6.2015

New rate of service tax                 14%

Date of provision of service        1.7.2015

Date of issue of invoice                5.7.2015

In above case, since the provision of service and issue of invoice (i.e. two events) are after the change in rate; new rate will be applicable on the entire service value. Thus, now the service tax payable on advance will be calculated as follows:-

50000*14% = Rs. 7000/-.

Since service tax of Rs. 6180/- has already been paid by 5.5.2015; differential service tax of Rs. 820/- (being 7000-6180) would be now payable.

The question is how and where this differential service tax of Rs. 820/- will be represented in the ST-3 return.

History of problems in return utility:-

In 2012-2013, the return utility (July-Sept)  had the facility of inserting an additional row and mentioning that differential rate of tax; thereby showing the additional tax to be paid in a particular month for a particular service. It had the facility of inserting any rate irrespective of the fact that statutory rate of service tax applicable as on date is different. Thus, in the given example, in the year 2012-13; we could show both the transactions of taxes paid and rates applied. There was facility in the return utility to consider the change in the rate of service tax and all the relevant details could be presented by way of inserting a new row below the main details.

Later on, the return utilities have undergone changes. In the later period till now, the return utility does not accept any rate other than the statutory rate applicable. Thus, now, if one tries to enter any rate other than the rate applicable as on date, the utility does not accept the same and the return gets void. Thus the return filer has to strictly follow the application of statutory rate only. For this the data of that particular period had to be adjusted so that net tax paid for that particular period could be arrived in the return.

Rate change w.e.f. 1.6.2015:-

W.e.f. 01/06/2015, the rate of service tax has been increased to 14% from 12.36%. Thus, a no. of assessees who have received advances and have already paid service tax on the same with old rate; will now be required to pay the differential tax. It is worth noting here that the last few return utilities are not accepting the rate of tax if it is other than statutory rate. However, since there was no change in the rate of service tax during this period, this problem did not come in limelight. Now, when there is change in service tax rate, again, the same problem would be faced since there will be two sets of service tax rates applicable for the same taxable service and no mechanism in the online utility to display the same.

While parting:-

Online filing has made the life of tax payers easier and hassle free; however, at the same time one or other fault in the return utility creates the hassle and it becomes a tough job to file the returns online. One such fault is being discussed in this article which can create problems in the coming month. There is still time in the due date of filing the ST-3 return. The authorities can manage to update the return utility as soon as possible. If it is not updated, a no. of online return filers will be harassed with no fault at their end.


CA. Pradeep Jain
CA. Preeti Parihar
CA. Vaibhav Bothra


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Pradeep Jain
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