Service tax on security deducted in case of works contract

Queries 485 views 3 replies

Peeyush Kumar Ramuka

Senior Transaction Tax at EY

42 Points Joined September 2011

A company which is providing services under "Works Contact" raises an invoice for say Rs 100. The client makes payment of Rs 95 after deducting 5% security as per contractual aggrement. [Provisions of TDS under Income Tax are ignored for simplicity]. This security amount will be paid when prject is completed 100%.

Now , under current regime of Sevice Tax , Company will be liable for ST on Rs 100 undoubtedly. However under Cash system of Service Tax that was applicable before 1/4/2011 if such a bill was raised , ST lliability was only on Rs 95 as recieved.

My query is that the company has such Security standing as its Receivables as on date and has not paid any ST on such amount. Is the company correct that liability on such amount will arise only when it is recieved. Please provide reference to Sections/Rules/Cases in support of answers. Thanlks

Replies (3)

Harendra Kumar

Tax Advisor

1326 Points Joined July 2011

Sir,

There is valuation method applicable and dept. asked about rest 5% such tax from service receiver and provided due to reason such tax application under work contract on partial basis. Whose are not given such tax on his portion they are have to paid such tax due to reason an agreement made both parts.

Thanking you,

Venkatanarayana GM

Partner associate at Hiregange & Associa

1279 Points Joined November 2009

Dear sir,

Please refer Rule of Service tax Rules 1994., " The service tax shall be paid to the credit of the CENTRAL GOVERNMENT by the 5th of the month immediately following the calendar month in which the payments are received, towards the value of taxable services:

so, it should be taxable in the month of receipt of the month, where payment has been received towards the value of taxable services.

The above rule is Rule 6 of Service tax Rule 1994 was existing till 1.4.2011.

For any clarifications/informations, you can write back

Thanks