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Service tax for payments not received

angel (Manager) (24 Points)

12 September 2011

We have been providing utility services for a goverment based company. We are suppose to pay service tax for the bills raised before receiving the payment for the same. Payment from the government companies take more than 6 months for payment. Most of the times, we are charged penalty by the Company for some pending issues for which we have already paid the service tax. We will come to know the same only after receiving the payment. Government based companies do not issue any penalty note towards us instead directly deduct the amount and make the payment. Now we have received a notice from Service tax to make payment towards the penalty amount saying any amount adjusted or deducted is liable for service tax.

Is this right?

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5 Replies

Govind Inani (Business) (203 Points)
Replied 12 September 2011

I understand from above that, you are making payment of service tax on the basis of bills raised and not on the basis of amount received. So at the time of paying service tax, you are not aware of penalty, and hence you are paying service tax on full amount of bill. Subsequently you receive net payment after deducting penalty. Thus you are paying service tax on penalty also. Thus contention of department is not right as you are already making payment of service tax on penalty. Consider following example.

Bill raised for Rs. 100

Service Tax @ 10.3% 10.3

Total receivable 110.3

Amount received 90

Here you are making payment on Rs. 100 and not on 90.

CA.B.Sivakumar (-) (162 Points)
Replied 12 September 2011

The contention of the department is not right as you have already paid the service tax on the full amount.

Is service tax applicable on any payment made to government company?. Please inform....

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 13 September 2011

Dear Angel,

As per the information given by you it seems that the demand raised by the department is not valid. While replying to the demand notice you should ask the grounds on which service tax on penalty amount has been made. The demand notice should clearly indicate the provisions under which demand has been made. As per my information penalty charged by customer is not defined as taxable service under the Act.

I may be wrong but there could be another case that while making payment to the government based company, you had adjusted the penalty expected by you on provisional basis and thus paid service tax on the amount net of such provision. If that is the case the demand raised by the department is valid. As per New Point of Taxation Rules, 2011 service tax is to be paid on billed amount even when payment for such invoice or bill is not received in full. So before going further please clarify this also.

Jeevesh Mehta (Advocate- Corporate Commercial & Indirect Tax Advisory) (861 Points)
Replied 15 September 2011

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 17 September 2011

Originally posted by : angel
	We have been providing utility services for a goverment based company. We are suppose to pay service tax for the bills raised before receiving the payment for the same. Payment from the government companies take more than 6 months for payment. Most of the times, we are charged penalty by the Company for some pending issues for which we have already paid the service tax. We will come to know the same only after receiving the payment. Government based companies do not issue any penalty note towards us instead directly deduct the amount and make the payment. Now we have received a notice from Service tax to make payment towards the penalty amount saying any amount adjusted or deducted is liable for service tax. Is this right?

as you have already discharged the service tax liability on issue of bills @ 100% without deducting any thing, also you did not claimed adjustment of service tax paid on basis of payment of lesser amount. so the department can not claim st more, if any additional amount is not received by you.