A NBFC issues notice by 'registered post acknowledgement due' for auction of jewels pledged in respect of default loans and recovers the same, adding some extra charges. For examples, if Rs.25 is postage charges, it adds Rs.2 towards other charges in this respect and recovers Rs.27 from the loanee. The Service Tax Superintendent charges service tax on the entire Rs.27, though actually no service is involved. This eats into the profit of the company, since the out of Rs.25 expended, the recovery net of service tax is Rs.24.22 (Rs,25-Rs2.78, as service tax). If just Rs.25 is recovered as reimbursement of postage, then Rs.2 will be the loss.
To obviate such a thing, can the company do as follows:
Recover Rs.25, being the actual cost of postage and actual reimbursement. Then, charge Rs.2, on which service tax could be collected and remitted to the department. The recovery of Rs.2 may be done one or two days later. This may be like any other charges. (The company is in the habit of charging incidental charges plus service tax once in a quarter).
Is there any legal impediment? Will the department proceed against the company?
CAclubindia
