Service tax on advance

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IF THE PAYMENT HAS BEEN RECEIVED IN ADVANCE AND SERVICE TAX WILL BE PAID IMMEDIATELY ON ADVANCE. THEN HOW TO ADJUST THE SAME.

LIKE A ASSIGNS WORKS TO B AND B FURTHER ASSIGNS IT TO C. A GIVES THE WHOLE CONTRACT AMOUNT RS.100 AS ADVANCE TO B. B WILL MAKE PAYMENT ONLY AT THE COMPLETION OF WORK AFTER 02 YEARS.

1. WHAT IS LIABILITY OF B IN CASE OF SERVICE TAX.

2. IN CASE B DEPOSIT S.TAX ON ADVANCE THEN HOW TO ADJUST THE SAME.

3. WILL B LIABLE FOR SERVICE TAX TWO TIMES 1. HE WILL PAY S.TAX IN ADVANCE AND SECOND WHEN C WILL DO THE BILLING, EVEN AT THAT TIME B NEEDS TO PAY S.TAX?

Replies (2)

Query is unclear w.r.t. the nature of work...

1.However, service tax is required to be paid on advance or bill raised.

Hence, B is liable at the time of advance receipt.

2.Since, the contract is exceeding for more than 3 months, it will be "continuous supply of service", C would be required to raise invoice within 30 days of such completion of event, like slabs in building construction [can be derived from the agreement].

If C doesn't raise invoice in time, then the completion of such an event would be the taxable event and tax would be required to be discharged by C.

If C does raise invoice in time, then the time he raises invoice would be the time when C would be requried to discharge ST at this time.

Interesting Question>>>

Here, A is the Contractee, B Contractor and C sub-contractor.

Between A and B:

A Pays full contract Value Rs. 100 to B. B must pay service tax on 50% value on Advance receipt i.e. Rs. 6.18 on 5th/6th of the next month/quarter. Since, the entire liability is discharged in advance, so B is not required to pay tax again when C bills to B and consequently B raises invoice on A. The advance service tax paid by B will be fully adjusted as and when B raise running invoice on A and on the basis of that invoice, A can claim Cenvat.

A should also dischare his 50% liability on payment basis under Rule 7 as service receiver and can claim Cenvat after payment.

B and C:

As and when C raise invoice on B, after completion of the event (like quality check, measurements, certifications), C is required to charge 50% of tax and pay the same. B can avail Cenvat for the same and utilise against Output Services. When B makes payment to C against invoice, he need to pay 50% tax as service receiver. He is not allowed to utilise the cenvat credit availed on invoice against the reverse charge liability as service receiver. 

So there is double taxation on the same contract. 1st B paid tax Rs. 6.18 and A paid Rs. 6.18. (Full Cenvat of Rs. 12.36 available to A)

Then C paid Rs. 6.18 and B again paid Rs. 6.18.

In my view, B can clam refund of the Cenvat Available Rs. 6.18, but for balance Rs. 6.18 paid by B under RCM as service receiver, it seems refund is also not available.

EXPERTS, PLEASE CORRECT ME>>

Regards,

Manoj Agarwal (tax2001-it @ yahoo.com)

 

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