Exchange rate

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Ritesh Goyal (Querist)
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25 May 2010 Dear,

I would like to know about exchange rate to be applied for conversion for payment of service tax. whether i should apply exchange rate available at the time of booking of invoice or exchange rate available at the time of payment to service provider.

Regards,

Shyam Lal Naik

Shyam Lal Naik (Expert)
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25 May 2010 Service tax is payable on receipt basis. In the case of liability in the case of reverse charge mechanism, tax is payable on payment basis.

The period of billing is relevant only to arrive at the applicable Service tax rate.

In my view, the exchange rate prevailing on the date of payment shall be taken for computing service tax liability.

Ritesh Goyal

Ritesh Goyal (Querist)
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25 May 2010 Dear Shyam,

But what would be the case for associate enterprises??? as we need to pay service tax in the same month of invoice received or provision made??
do we need to pay differential service tax if exchange rate enhance or we can claim refund claim if exchange rate reduce at the time of payment of invoice.

regards,

Shyam Lal Naik

Shyam Lal Naik (Expert)
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25 May 2010 Making entries in the books of account in case of associated enterprise is treated at par with actual payment in case of other parties. Hence, exchange rate prevailing on the date of making the book entry shall be considered.

The above view gains support from the fact that an assessee receiving input service from an associated enterprise is eligible to take cenvat credit, once the service provider remits the service tax to the Government's credit. This is irrespective of whether the assessee has actually retired the bill by making payment. The relevant circular does not say any thing about adjustment to Cenvat at the time of payment.

We can say, transaction with associated enterprises is an exception.

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