Reversal of service tax on account of non receipt of payment

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mangesh dhumal (Querist)
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18 September 2013 The service tax is payable on accrual basis. The invoice was raised on 01/04/2012 for Rs.112360/- and service tax of Rs.12360/- was paid on 05/07/2012 on quarterly basis. However the payment was not recd against the invoice raised on 01/04/2012 till 05/01/2013. Can the service tax payer subtract the liability of service tax for the quarter ended 31/12/2012 by Rs.12360/- on account of non receipt of payment for invoice raised on 01/04/2012 within 3 to 6 months ?

CA Ravi Kumar Murugesh

CA Ravi Kumar Murugesh (Expert)
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19 September 2013 As per Rule 6 (3) of the Service Tax Rules, 1994, as amended by Notification 3/2011, if any invoice is issued or payment is received (accordingly service tax also would have been paid) but the service was not provided, the service tax paid can be taken as credit adjusted against any other liability.
As per Sub rules (4A) and (4B) of Rule 6, any excess payment of service tax, which is not due to any interpretation, taxability, classification, valuation or applicability of any exemption, can be self adjusted upto Rs.2,00,000.
But, there are no provisions if service tax has already been paid but the payment has not been received. For example, if the service is already provided and the invoice has also been issued, service tax would have been paid on the same, at the time when the service is provided or at the time when the invoice is raised, whichever is earlier. But if the payment is not at all received subsequently, there is no provision to claim
adjustment / refund of the service tax already paid. Such service tax could not be covered under Rule 6 (3) of the Service Tax Rules, 1994 as the service has been provided. It cannot be covered under Rules 6 (4A) / (4B), as it is not a case of any excess payment of service tax. The service has been provided and hence the taxable event has happened. As the point of taxation has also occurred, service tax has also been paid. So, it is immaterial, whether the payment is received or not.

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