Service tax on reverse charge ( import of services)

This query is : Resolved

vivek gupta (Querist)
Follow

27 May 2013 My company has taken a consultancy service on 1.07.2010 from a associated enterprise of australia.
But the company has made a provision for expense in March 2010.
Company reverses provision for expense in March 2011

company has made the payment to associated enterprise on the basis of actual booking of bill which is booked in july 2011 and company has paid the service tax in the month of ju;y 2011.

Now the service tax department is demanding intrest for 1 year for the period from march 2010 to march 2011 on the creation of provision of expense.

On the other hand I am arguing with department that in the present case I have made a reversal of provision next year therefore ultimately no service tax is payable by the company and thus no intrest will be payable.

Plz tell me whether Intrest will be payable or not. Plz give reply with appropriate reason...........

Arun Kumar Singh

Arun Kumar Singh (Expert)
Follow

27 May 2013 You should pay the interest on late payment of duty.

vivek gupta

vivek gupta (Querist)
Follow

27 May 2013 But in the present case I have reversed my provision so ultimately the ser4vice tax paid on provision is nil

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
Follow

24 July 2025 Here's a clear explanation regarding your situation on **service tax reverse charge on import of services** and interest liability:

---

### Facts Recap:

* Your company received consultancy services from an associated enterprise in Australia on 1.07.2010.
* You created a **provision for the expense in March 2010** (before the service date).
* You reversed the provision in March 2011.
* Actual payment and billing happened in July 2011, and you paid service tax then.
* Department demands interest on service tax from March 2010 to March 2011 (period of provision).

---

### Key Points:

* **Service tax under reverse charge** is payable **when the service is received** or the liability arises.
* A **provision for expense is an accounting estimate**, but service tax is based on actual receipt of service and billing, not just accounting entries.
* Since the **actual service date is July 2010**, service tax liability arises only when service is received and billed.
* The **provision made in March 2010 was premature**, so no actual liability arose then.
* You reversed the provision in March 2011, which means no actual expense for that period.
* Since the **actual payment and service tax payment happened in July 2011**, interest should be calculated from that point onward if payment was delayed.
* For the period March 2010 to March 2011, since no actual liability existed, **interest demand on provision period is not justified**.

---

### Conclusion:

* You are correct in arguing **no interest should be payable for the period March 2010 to March 2011** because the provision was reversed and no actual service tax liability existed then.
* Interest may be payable if there was a delay **after the actual billing and payment date** (i.e., July 2011).
* You can support your argument with the fact that service tax liability arises on actual receipt/payment of services, not on accounting provisions.

---

If you want, I can help you draft a formal response or suggest relevant legal references to strengthen your case. Would you like that?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now