A rule under service tax got changed on 1 July 2011 that was an
important rule, rule of Service Tax liability. When does service
provider's liability arise to submit service tax to government.
Earlier Practice : -
Service Tax Payable
when a service provider raise an invoice, he has to submit
the service tax on collection of payment Eg. Supose If a service
provider raise an invoice of Rs. 10000 + Serive Tax (12.36%) =
Rs.1,12,360. And he receive payment of Rs.50,000 from clinet
agasint this invoice than service provider will have to submit
service tax of Rs.5500 only to Government.(12.36% on Rs.44500).
Service Tax Receivable
Whatever Services / expenses borne by service provider during
providing the services , service tax on those invoices of
those services and expenses are allowed as input credit.
whether service provider made payment to them or not.
Now the Service Tax Payable rule has been changed, the new rule
is a service provider has to submit the service tax on raising
the invoice. It means whether service provider receive the payment
from client or not he must have to submit service tax on the month
A lot of people from accounts says its not a good rule, what if
a service received does not pay the payment to service provider,
than service provider also has to lose its service tax. And
it creates extra burden on service provider.
But why Service Tax Department change it?
To Avoid the evation of Service Tax.
The biggest disadvantage of this point is a service provider could
easily evade his service tax liability for the time being
Eg. ABC service provider ask XYZ to raise an invoice of Rs.
10,00,000 (Ten Lac ) in name of ABC. and takes the service tax input
credit of Rs. 1,23,600 ( One Lac Twenty Three Thousand Six
Hundred Only) even without paying to XYZ. After 3 Months it cancel
the invoice and again become liable to pay that service tax ( on
which he has taken credit input. But the benefit he availed
is of Interest on Rs.1,23,600 for 3 Months i.e. Rs.3708 (
as per earlier interest rate) Rs.5562 as per new interest rate).
It is clearly a fraud with government.