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Service tax liability on advance received?

saurabh gupta (Article) (68 Points)

14 December 2016

Hello everybody,

I have a very unusal Service tax query here and i really hope i will get my answer here.

Query:

How to determine laibility of service tax on advance received when the advance received is to be used against providing Service as well and Vat items (Sale) and the same is not ascertailnable on the date on which advance is received (The advance will be utilised over the period and not sure about how much portion of advance will be adjusted against service)

Please provide answer with some legal base i.e. referring sections/ Rules/ Judgements

Thanks a lot for coming forward for this query.

Regards

Saurabh Gupta

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CA Sagar Upadhyay (Chartered Accountant) (38 Points)
Replied 15 December 2016

Whether it is works contract Service?

If your work is of nature of Original Works then the value shall be 40% and If it is of other works then the value shall be 70%

If if it is original works, then treat the amount received as for Service as well as supply. Divide the amount received in advance as 40% towards Service and 60% Towards Material.

If it is not original works then treat amount received as 70% towards Service and 30% towards Material.

If your service is not a works contract service and supply as well as service are totally different then take a letter from party that amount received by you is towards material or service. As the Department will always levy allegation that it was towards Service. It will be issue of litigation.