Applicability of service tax on advances received

while posting the queries pls try to eleborate max details possible to produce a clear picture which will help to analyse and produce a suitable reply to query.

1) when is the period of advance receipt? within audit period or prior to it? if its pior to it, then audit party has no rights to that advance.

2) what is status of service provider, individual / proprietory / partnership / company ?

3) what is annual service tax liability of the service provider?

4) does he supply manpower to single entity / firm or to multiple companies, if multiple, then is there any of his clients is state govt or central govt?

5) does he maintain records of ESI/PF//Profession tax for his manpower employed?

If you finally adjust the loan against value of services, department can argue that loan is nothing but advances for service to be provided. If no such adjustment has been made and you have document to prove that loan is purely on commercial terms which have no nexus with the services provided, then you have good case to fight.

I have asked u in PM to return the loan so taken by cheque and submit the documents for satisfaction of audit party, 

in future if u avail any kind of advance and loan from such clients, keep the rules and provisions of rules in mind and make documents ready for onward verification by departments.