Problem on Service TAx

Dear All, Company A made a Work Agreement with Company B. Company B will test a component made by Company A. The Class of service is Technical Testing and Certification. Company A is estimated to test 5000 components in 100 days. Company A will pay Rs.2000 for testing one component. Company B will raise Invoices monthly. In case Company A is not able to complete making 5000 components in 100 days, Company A will pay Rs.50000 per day inclusive of all taxes to Company B in addition to the rate of Rs.2000 per component. Company A was able to make 2700 components in 90 days. After this in the next month Company A made 650 components. For this month Company A has to pay for 650 components and for 20 days. Company B raised the Invoice as follows. Since the amount per day is inclusive of all taxes, Company B recalculated the rate for 20 days as 45330.92 without the Service tax of 10.3%. So the Bill amount is ( 650 X 2000 ) + ( 20 X 45330.92 ) = 2206618 + Service Tax 10.3% = 2433900 Gross Amount. But company A approved the Invoice as follows. (650 X 2000 ) + ( 20 X 50000 )= 2300000 + Service Tax 10.3% on 650 components Rs. 133900 = 2433900 Gross Amount. Both the Companies Gross Amounts are the same. But only the Bill amount and Service tax amounts are different in the Companies Bills. Which is the correct way of doing it? Can anyone explain please? Regards

HI praven

General rule : service tax should be paid on the gross amount received so make back calculations and find out the service tax amount due on amount received from service receiver.

Answer for your ques,

invoicing way of Co.B is correct as the Co. A is not disclosing the amount of service tax involved in Rs.50000

It Should be assumed the amount of Rs.50000 per day is paid against the services

as it is paid due to the services taken so it should be inculded in the service charges and liable for service tax.

I think Co.A is doing the invoicing in such a way as it assumes that the amount of Rs.50000 is not provided against the services so not liable for service tax.

Note: Service tax is the liability of service provider so co.A should not provide any interreption as if the service tax amount is more in the bill then that is the loss of Co.B as the gross amount bill is same.