Service tax payable

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Shamsheer (Querist)
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17 June 2014 Dear All,

Service tax should be paid upon raising the invoice or upon reciept of payments?

I am seeing people suggesting both the ways. Hence I would like to have an expert advise.

Thanks in Advance.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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17 June 2014 after introduction of point of taxation rules implementation, the service tax becomes due on invoice basis...

Shamsheer

Shamsheer (Querist)
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17 June 2014 Thank you for the quick response.

But I have one more doubt on it. If the receivable amount becomes a bad debt, or any deduction on already raised invoice, then can we claim for the service tax we already paid?

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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24 July 2025 Great question — and a common one. Here's the clear position based on **Point of Taxation Rules, 2011 (POTR)** and **Service Tax Law** as applicable **before GST** (i.e., before July 1, 2017):

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## ✅ **1. When is Service Tax Payable?**

Under the **Point of Taxation Rules, 2011**, service tax is generally **payable on the earlier of**:

* **Date of invoice**, or
* **Date of payment received**,
Whichever is earlier.

### Example:

* Invoice dated: 10 June 2014
* Payment received: 25 June 2014
👉 **Tax is payable on 10 June 2014** (invoice date).

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## ⚠️ **2. What if It Becomes a Bad Debt Later?**

This is where things get tricky:

* **Even if you do not receive the payment**, **you cannot claim refund or reversal** of the service tax paid on that invoice.
* **There is NO provision** under the Finance Act, 1994 or CENVAT Credit Rules to **adjust service tax paid against bad debts**.

### Important Case Reference:

> In **CCE vs. Sundaram Finance Ltd. (2015-TIOL-958-HC-MAD-ST)** — it was held that **non-receipt of consideration** does not entitle the assessee to **refund or reversal** of service tax paid.

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## ✅ **3. What About Deduction or Discount on Invoice?**

If the invoice amount is **later reduced** (e.g., due to negotiation, rejection, or discount), and:

* The revised amount is **mutually agreed**,
* **Credit notes** are issued,
* And no payment is made on excess amount,

👉 Then, you may be able to **adjust excess service tax** in subsequent periods **subject to Rule 6(3) of the Service Tax Rules, 1994** — but only if the tax was **not passed on** to the recipient.

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### 🔍 Summary:

| Situation | Can You Claim Back Service Tax? |
| ------------------------------------- | -------------------------------------------- |
| Bad debt (non-payment) | ❌ No refund or reversal allowed |
| Negotiated deduction with credit note | ✅ Possible adjustment under Rule 6(3) |
| Invoice cancelled before payment | ✅ No tax payable (can adjust in next return) |

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Let me know if you need a draft **debit/credit note format**, or a **self-declaration template** to support tax adjustments.

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