Disallowance of Service Tax u/s 43B

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Chinmay Desai (Querist)
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07 December 2009 I have 2 situations as disallowance of Service Tax :-

1.The Assessee has received Service Tax before 31March,20xx but has not paid it before filing of return u/s 139(1)

2.The Assessee has received the service tax after 31March,20xx but has not paid it before filing of return u/s 139(1)

Would it be affected by the method how the service tax had been recored i.e.through p&l or Balance Sheet

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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07 December 2009 As per section 68 of the finance Act,1994 read with rules, service tax becomes payable to the credit of the central government only on receipt from client. Service tax though billed but not received, not having become payable to the credit of the central government by virtue of the above provisions,could not be disallowed under section 43B. Further, a service provider is merely an agent of the government, and as such is not entitled to claim deduction on account of service tax and, therefore ,the analogy of sales tax, excise duty etc is not applicable in the case of service tax.

Citation :- ACIT Vs. Real Image Technologies Pvt Ltd 9 DTR 261 (Chennai-Tri).

Chinmay Desai

Chinmay Desai (Querist)
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08 December 2009 Sir,
Thank you for your reply.I know that Service Tax is payable on receipt basis and not on accrual baasis.In my question the assessee has already collected service tax but not deposited to government.Then dont we have to add it to his income computation

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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08 December 2009 If the service tax collected is credited to a separate account and payment is debited in the said account itself,in your case, the year end result will show a credit balance and that will be carried to the balance sheet. If u have followed the accounting procedure aforesaid and since no debit has appeared in the profit and loss account addition of ST payable is not warranted.

Chinmay Desai

Chinmay Desai (Querist)
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08 December 2009 Sir,
As the defination of Turnover in case of trading concern includes sales tax also same way shouldnt Service Tax be included in turnover in case of service providers.Accounting of service tax through Balance Sheet is a tax evasionary practice.So to finally conclude can we say that if we record service tax via BS then no disallowance will attract u/s 43B

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