Service tax on excess advance received

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

03 June 2014 A builder company has received excess advance money as consideration for flat and the service tax has been charged on the full amount and paid to government. Now the excess amount is being refunded.
Therefore can we take credit of service tax paid on excess advance money in progressive payments of service tax?

Querist : Anonymous

Querist : Anonymous (Querist)

18 June 2014 kindly reply on the matter...

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Regarding service tax on excess advance received and its refund:

* When a builder receives an advance from a customer for sale of a flat, service tax is payable on the amount received as advance **at the time of receipt**.

* If excess advance was received and service tax paid on the full (excess) amount, and then that excess amount is refunded to the customer, **the question is whether you can adjust or take credit of service tax already paid on the refunded amount against future service tax liabilities**.

### Key Points:

1. **Refund of excess advance reduces the value of taxable service** — since the total consideration effectively reduces.

2. However, **once service tax is paid on an advance, it is generally not adjustable or refundable automatically**.

3. The law does **not explicitly allow credit or refund of service tax paid on excess advance in subsequent payments**.

4. The builder should maintain clear records and **adjust the excess amount in the final valuation** of taxable service for future payments.

5. If the excess amount was refunded after payment of service tax, **you may file a refund claim for service tax on the refunded amount**, but this can be complex and subject to department’s approval.

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### Suggested course of action:

* Keep proper documentation of the excess amount received and refunded.

* Adjust future service tax payments to reflect the net advance received (after refund).

* Consult with a tax professional or file a refund claim for the excess service tax paid, if permissible.

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If you want, I can help draft a refund claim or guide you on how to manage this with the department. Would you like that?

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