CA.Varalakshmi.M (Manager-Finance) 01 August 2012
Hi friends ,
We have received an advance for a contract ,where we collected and paid the service tax to the Govt.,but later the contract is being cancelled ,they are asking for refund
Do we need to pay the amount including service tax or excluding service tax?
if we pay the amount including service tax ,can we get the refund from Govt??
Thanks in advance.
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RENGARAJ R.K (ADVOCATE) 01 August 2012
In the current monthly taxable turnover, please deduct the cancelled order turnover and pay for the balance taxable turnover, thereby you get the refund automatically. Please keep the working sheet in the service tax file about the current month turnover and any cancelled order value for future reference.
CA Ganesh Karthik (Chartered Accountant) 02 August 2012
Just a clarification required in this regard.
The law says service tax has to be paid for the services provided or agreed to be provided.
Will / Wont these wordings afftect the above transaction in any way?
Pallav Narang (Audit and Article Assistant) 18 December 2012
In the situation where the service has been cancelled or not provided and the invoice related to that service has been issued, paid and service tax related to that service has been deposited and the service receiver is asking for a refund there arise two situations:
1. To refund the whole amount of the invoice including service tax to the said service receiver. Or,
2. To refund just the gross amount back to the said service receiver and the rest amount being charged as cancellation charges. [Effect of deduction of Cancellation Chares: In most of the practical situations, the service provider does not refund full amount of advance received from the customer. In other words, while granting refund to the concerned customer, the service provider usually deducts some amount in the name of ‘Cancellation Charges’. The million-dollar question is whether such cancellation charges are subject to Service Tax? Since foregoing Cancellation Charges fall within the ambit of Section 66E (e) of Finance Act, 1994 i.e. Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation or to do an act, these charges will attract Service Tax at the full rate] [which is 12.36% at present].
In both the situations of surrender and cancellation, the concerned service provider can make adjustment of excess payment of Service Tax in terms of Rule 6(3) of Service Tax Rules, 1994 which is given below for ready reference:
[(3) Where an assessee has issued an invoice, or received any payment, against a service to be provided which is not so provided by him either wholly or partially for any reason,
[or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract] the assessee may take the credit of such excess service tax paid by him, if the assessee,
(a) has refunded the payment or part thereof, so received along with the service tax payable thereon for the service to be provided by him to the person from whom it was received;
(b) has issued a credit note for the value of the service tax not so provided to the person to whom such an invoice had been issued.”]
In order to elucidate the issue of adjustment of excess payment of Service Tax following simple example is given:
In the above example, it can be appreciated that XYZ Ltd. has received the specified payment [in the form of advance] of ` 5,15,450/-from Utkarsh Kapoor against construction service to be provided which is not so provided by it wholly due to cancellation of booking of flat.
However, XYZ Ltd. has already deposited service tax of ` 15,450/- to the credit of Central Government on 04.05.2012. Thus, XYZ Ltd. can make adjustment of excess payment of Service Tax of Rs .15,450/ after it has refunded amount of ` 5,15,450/- to Utkarsh Kapoor on 25.06.2012. Thus, while discharging its service tax liability for the month of June, 2012 [or in any subsequent month thereafter] XYZ Ltd. can make adjustment of excess payment of Service Tax of Rs .15,450/.
Hope it helped.
sneha (ACCOUNTS AND TAX MANAGER) 31 May 2019