Service return partially

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 August 2015 Hi
i have a query.....that i have done all work of client and issued invoice in dec 14,service tax deposited on time e.g. 5 jan 15, received payment from client on time.

but now due to some term not fulfilled client demanding part payment of invoice as service return/sale reurn.......pls guide how can adjust....can issue credit note to client with service tax 14% or 12.36% and how can do adjustment in books..pls guide

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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11 August 2015 Yes you can issue credit note to client with service tax of 12.36% only.

Querist : Anonymous

Querist : Anonymous (Querist)

11 August 2015 Thanks, But how can take credit of service tax from current rate @ 14%

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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11 August 2015 That is a problem other experts can suggest the way out.

Querist : Anonymous

Querist : Anonymous (Querist)

12 August 2015 Hi Any one pls suggest

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 You're dealing with a partial service return (credit note scenario) in August 2015, for a service rendered and invoiced in December 2014, where:

Invoice issued: Dec 2014

Service tax paid: Jan 5, 2015

Rate at the time: 12.36%

Current rate (as of August 2015): 14%

Now: Client is returning part of the service / demanding refund

You want to issue a credit note and adjust service tax accordingly

✅ Key Legal Reference:
Under Rule 6(3) of the Service Tax Rules, 1994, if excess service tax is paid due to service not fully provided (whether wholly or partially), the provider may adjust the excess amount paid against future liabilities.

✅ What You Can Do:
Yes, you can issue a credit note for the part of the service value not accepted by the client.

You must adjust only at the original service tax rate (i.e., 12.36%, not the current 14%), because:

The original invoice and tax payment were made when the rate was 12.36%.

You cannot claim back at a newer rate than you actually paid.

✅ Step-by-Step Action Plan:
1. Issue Credit Note
Raise a credit note for the proportionate value of the invoice being returned.

Mention 12.36% service tax rate on that amount.

2. Accounting Entry (Books of Accounts):
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Copy
Edit
Customer A/c ............... Dr. (for net service amount)
To Service Income A/c .................... Cr.
To Service Tax Payable A/c .............. Cr. (at 12.36%)

On issuing credit note:

Sales Return/Adjustment A/c .... Dr.
To Customer A/c
To Service Tax Recoverable A/c (at 12.36%)
3. Adjustment in Service Tax Return:
Under Rule 6(3):

You can adjust the excess service tax paid against your future output liability.

Reflect this in ST-3 return under:

Part B2 (Adjustments of Service Tax Payable)

Use the field “Adjustment on account of return of service / cancellation of invoice / other reasons”

⚠️ Important Conditions for Adjustment:
You must issue the credit note and make the adjustment within 1 year from the date of original invoice.

Maintain proper documentary evidence (copy of credit note, communication with client, etc.)

Adjustment should not be claimed if you had already passed on the burden to someone else, and they availed CENVAT credit.

✅ Final Notes:
Item Action
Credit Note Rate 12.36% (rate applicable when invoice was raised and tax was paid)
Adjustment Allowed? ✔️ Yes, under Rule 6(3)
Reflect in ST-3 Return In Part B2, as negative adjustment
Take Credit at Current Rate? ❌ No. Take credit only at 12.36%

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