Refund of service tax on bad debt in case of telecommunicati

This query is : Resolved

Vivekanand Kushwaha (Querist)
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11 September 2015 Hi,
It is often seen in case of post-paid connections that the subscribers do not pay the bills and same is charged to bad debt A/c. As we know that, as per the Point of Taxation Rules, 2011 the tax is to be deposited at the time of issue of invoice or payment whichever is earlier. Therefore, we need to make payment as and when invoice is raised on post-paid customer. In lack of any provision for bad debt telecommunication co. are unable to adjust the service tax portion of bad debt amount from service tax liability.

If you refer to the explanation to Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 with notification No.02/2011-Service Tax Dt. 01/03/2011, it clarifies that in case of telecommunication service the value for the purpose shall be the gross amount paid by the service receiver to whom the services is actually provided. The point here to notice is that the word used in the explanation is paid and not payable. Therefore only the actual amount paid by the service receiver shall be considered and not the amount to be collected from the customer. So, in case of bad debts if the amount paid by the service receiver to whom services is actually provided is NIL, then no service tax is leviable on the said transaction and the tax deposited earlier is eligible for refund.

Please advise whether my view is correct? If not please share reasoning.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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13 September 2015 Your view is not correct. As per point of taxation rules service tax is payable when service is provided and invoice is raised service tax is payable. For bad debts you can't claim any refund.

Vivekanand Kushwaha

Vivekanand Kushwaha (Querist)
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08 June 2016 For telecommunication services service tax is payable on amount received by service provider

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