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query

CA Devender Chauhan (Group Financial Accountant) (1526 Points)

30 October 2009

if a person provise some services when the service is not taxable & subsequently the service become taxable. wat will be his service tax liability when he has not received any amount at the time of contract & he receives amount when the service become taxable?

wat if he has received payment for service at the time of contract but the he provides services when the service become taxable.

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7 Replies

Sorabh Gupta (Manager ( Taxation )) (877 Points)
Replied 30 October 2009

As per the service tax rule , taxable event for charging of service tax is the act of rendering of services. In other words service tax is liable only when the service become taxable.

As in ur case "if a person provise some services when the service is not taxable & subsequently the service become taxable" person shuld compute the value of service on pro-rata basis i.e. value of service before taxable & after taxable & then just charge & pay the service tax accordingly......

Payment is nothhing concerned OR payment is no matter , the point is when service becomes taxable........

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sivaram (Asst Mgr-Taxation) (6918 Points)
Replied 30 October 2009

thanks Mr Sorabh gupta for your valuable reply

(Guest)

Agree with Sorabh.

Service Tax becomes liable on rendering of services and not on payment basis...

Sushil (CA Final Student) (2571 Points)
Replied 30 October 2009

Thanks Sourabh.

Parth - CA,CS,CMA (Learner) (406 Points)
Replied 30 October 2009

Saurabh is correct.

Dilip Darji (392 Points)
Replied 30 October 2009

There was lots of clarification from the different persons. I am clarifying with respect to legal provisions.

Section 66 of The Finance Act, 1994 is a charging Section, which reads"'There shall be levied a tax @ 12 % of the value of taxable services referrred to in Clause 105 of Section 65 and collected in such manner as may be prescribed".

The procedure for collection of Service Tax is prescribed in Service Tax Rules, 2004. Rule 6 (1)(i) provides that the servuice tax shall be paid to the credit of the central govt., by 5 th of the month following the calander month in which the payments are recived, towards the value of taxable services.

This indicates that though Service Tax liability arises on providing Services but the same is payable only on receipt of payment from the service receiver, toewards Services provided to him.

Further the proviso to Rule 6 (1)(i) provides that "Provided further that notwithstanding the time of receipt of payment towards value of services, no service tax shall be payable for part or whole of the services, which is attributable to service provided during the period when such services were not taxable"

This clarifies that if the payments from the service receivers are received during the time when Service Tax is payable, no service tax is payable if the payments are received towards services provided during the period when service tax was not payable.

Hope that this shall meet with your requirement.

DILIP DARJI.