Service tax on receipt basis

This query is about before introduction of Point of Taxation Rules.

Service Tax liability was on receipt basis. Accordingly, the assessee was liable for only proportionate amount of service tax which he has received from his debtor.

If there is bad debts of any debtor, whether assessee is liable for service tax of the amount which becomes bad debts?

Manager (Indirect Taxes)

Dear Govind,

Please refer to the point number 6 of Notification Number 25/2011 dated 31.03.2011 that brought amendments to Point of Taxation Rules, 2011. The relevant part is produced below for your reference:

"6.         For rule 9, the following rule shall be substituted, namely:-

9. Transitional Provisions.- Nothing contained in this sub-rule shall be applicable,-

(i)                   where the  provision of service is completed; or

(ii)                  where invoices are issued

prior to the date on which these rules come into force.

                        Provided that services for which provision is completed on or before 30th day of June, 2011 or where the invoices are issued upto the 30th day of June, 2011, the point of taxation shall, at the option of the taxpayer, be the date on which the payment is received or made as the case may be."

Therefore for invoices issued before the effective date of these rules where provision of service is completed, tax payer is not required to apply these rules.

Moreover, an option has been given to assessee to pay tax on payment basis in case of services for which provision is completed on or before 30th day of June, 2011 or where the invoices are issued upto the 30th day of June, 2011.

Hence, in case of Bad debts, as no payment is received no tax has to be paid for the same.

Hope my clarification is valid. 



In case the invoices are issued after 1st July 2011 for which the company has paid the service tax. And the debtors become a bad debt for the company. 


Then in that case can the Company be allowed to take credit of paid? 


Pls provide the specific provision where it is allowed or denied.


Thanks Mr. Prabhat for your reply.

Now suppose assessee has paid servicetax at the time of issuing bill in F.Y. 2009-10. And against this bill he received partial payment in F.Y. 2009-10 and the balance becomes bad debts in F.Y. 2011-12. Can he claim back the service tax already paid by him on amount which has become bad debts in F.Y. 2011-12?

Manager (Indirect Taxes)

Dear Nihar,

Unfortunately, the assessee will have to bear the burder of Service Tax paid in such cases. The New Point of Taxation Rules, 2011 as amended do not provide any provisions for such adjustment. Such service tax could neither be covered under Rule 6 (3) of the Service Tax Rules, 1994 as the service has been provided, nor could it be covered under Rules 6 (4A) / (4B), as it is not a case of any excess payment of service tax. The service has been provided and hence the taxable event has happened. As the point of taxation has also occurred, service tax has also been paid. So, it is immaterial, whether the payment is received or not.

Though I have heard that some representations on the above issue have been made and are under consideration. Hope the future amendments bring about some relief for Service Tax assessees in above such cases.

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Manager (Indirect Taxes)

Dear Govind,

For your query I dont have any specific solution but you should refer rule 6 (4A) & (4B) of Service Tax Rules, 1994 as amended. Following the option given in Notification No.25/2011, the assessee was required to pay Service tax on amount of consideration actually received by him. So there is certainly a case of excess payment, but I have witnessed cases where such excess payments are adjusted in the next month or quarter, but I am not sure about such a long period. Moreover the words used in the rule referred above are "the succeeding month or quarter." Hence my opinion is that the department may not allow adjustment of such Service Tax. The Rule is reproduced below for your reference:

"[(4A) Notwithstanding anything contained in sub-rule (4), where an assessee has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, as the case may be, the assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter, as the case may be.

(4B) The adjustment of excess amount paid, under sub-rule (4A), shall be subject to the following conditions, namely:-
(i) excess amount paid is on account of reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification,
(ii) excess amount paid by an assessee registered under sub-rule (2) of rule 4, on account of delayed receipt of details of payments towards taxable services may be adjusted without monetary limit,
(iii) in cases other than specified in clause (ii) above, the excess amount paid may be adjusted with a monetary limit of 5 [ one lakh rupees] for a relevant month or quarter, as the case may be,(iv) the details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such adjustment.]"


An Individual is following receipts basis of accouting. Wherther the service provided by him liable to tax on accural basis or receipt basis?  Can any one guide me for the A/y 2012-13 i.e for the finacial year 2011-12?

Taxation Manager

Irrespective of the accounting policy followed by the service provider, the liability is on accrual basis only.


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