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Service Tax Query

CA Riswa Parekh (Practicing) (1591 Points)

29 October 2010

How is the advance money recieved is treated for charging service tax? Whether tax is included in that money or not?Provided it is not given in the question that amount is gross or net.

For e.g.,5,00,000 is received in advance than the treatement would be :

5,00,000*10.3%=51,500 OR 5,00,000*10.3/110.3=46,690.84

(I am raising this question bcz generally calculation is done as per above given option (1)

But in suggested answer of pcc may 10 solution is given as per option (2))

Pls reply.......

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12 Replies

CA Manish Kumar (Chartered Accountant) (383 Points)
Replied 29 October 2010

Hi Rishwa

When the advance money is received, it should be treated as inclusive of service tax thus as per your answers option 2 is correct.The advance money should be taken exclusive of service tax when it has been specifically specified in the question.

1 Like

Gaurav Hallan (CSS) (26 Points)
Replied 29 October 2010

Provisions:

1. Service Tax is leviable on services "provided" or "to be provided".

2. In cases where service tax is not separately specified, the amount received is considered to be inclusive of service tax.

Answer to ur query:

1. Advance received is considered to be amount received for services "to be provided" and hence will be subjected to service tax.

2. Since service tax has not been charged separately, the amount received is considered to be inclusive of service tax and hence the service tax is computed as per option 2.

Service Tax (inclusive in advance) = 5,00,000*10.3/110.3 = 46,690.84

Originally posted by : Riswa
	How is the advance money recieved is treated for charging service tax? Whether tax is included in that money or not?Provided it is not given in the question that amount is gross or net. For e.g.,5,00,000 is received in advance than the treatement would be : 5,00,00010.3%=51,500 OR 5,00,00010.3/110.3=46,690.84 (I am raising this question bcz generally calculation is done as per above given option (1) But in suggested answer of pcc may 10 solution is given as per option (2)) Pls reply.......

1 Like

VUELVE (CA- Student) (351 Points)
Replied 29 October 2010

Its simple logic.

Read the provisions carefully. In the above question of May'10, advance amount received is the Whole/Complete amount for the service contract to be discharged in future. This means Service which is to be provided has received all its due.. So from where ST will be collected.??? Of course from the amount received in complete. That is why they have done 10.3/110.3.

In other cases, where the advance is received as a part payment of whole service contract, thr we do only 10.3 %. It is because that advance will be adjusted from the future wholesome amount to be determined.

Hope i am clear to you.

Its not the question whether to assume like this or like that. Read the question and then apply the provisions.

Question indirectly says for applying 10.3/110.3. Interpret the question properly as given above in my reply and in answer of that May'10 question.

The 10.3/110.3 is not done everywhere. Practicality and applicability of ST provisions are to be considered.

3 Like

RAMA KRISHNA (Sr.Executive - Accts & Preparing for IPCC) (670 Points)
Replied 29 October 2010

Rs. 46,690.80 is correct, agree with Manish, Gurav & vuelve

1 Like

Azim Khan ACA,CS,CMA*,LLB* (Proprietor) (1312 Points)
Replied 29 October 2010

In exam, if it is mentioned that Service Tax is to be charged separately, then Option 1 will be correct.

if it is not specifically mentioned, then assume that the amount so received is the inclusive of service tax.

1 Like

CA Riswa Parekh (Practicing) (1591 Points)
Replied 29 October 2010

Pls see the solution given in Nov 09

Ms. Priyanka, a proprietress of Royal Security Agency received Rs. 1,00,000 by an

account payee cheque as advance while signing a contract for providing taxable service.

She received Rs. 5,00,000 by credit card while providing the service and another

Rs.5,00,000 by a pay order after completion of service on January 31, 2009. All three

transactions took place during financial year 2008-09. She seeks your advice about her

liability towards value of taxable service and the service tax payable by her.

Computation of taxable service of Ms. Priyanka for financial year 2008-09

Particulars Rs.

Advance received by an account payee cheque 1,00,000

Amount received while providing service through credit card 5,00,000

Amount received on completion of service by a pay order 5,00,000

Value of taxable service 11,00,000

Calculation of service tax liability

Particulars Rs.

Service tax @ 10% on Rs. 11,00,000 1,10,000

: (i) Education cess @ 2% on service tax 2,200

Add

: (ii) Secondary and higher education cess @ 1% on service tax 1,100

Total service tax payable 1,13,300

CA Navin Jain (MANAGER (FINANCE & ACCOUNTS)) (11768 Points)
Replied 29 October 2010

answer is fully conceptless

CA Manish Kumar (Chartered Accountant) (383 Points)
Replied 29 October 2010

The answer given in the question asked by you is not correct.It has been stated in the Service Tax Rules that whatever is received should be taken as inclusive of Service Tax.How can you assume that in the question that the Serive tax is received additionally by Ms. Priya.There is no such thing which indicates this in the Question.You may check the correctness of my answer at any where you want.

1 Like

Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 29 October 2010

Reasons for May'10 question:-

1-- All the contracts are separate . In other words, they are to be completed at different time for which they have paid advance.

2-- Since its advance and there are no further transactions for that 1 particular contract, how you will account for ST???

Provisions says--- " Total of money & money value has to be treated as inclusive of ST thereon"

Here, each contract is total value of money which ha been received in advance. So we do 10.3/110.3

Reasons for Nov'09 question:-

1-- Read the above provision first. Now say, whether the amounts received in Nov'09 question is total money or not?? Answer is IT IS NOT

then what to do...??

nothing...

Just provide full 10.3% on that advance received because it is not satisfying the provision above. The contract moneys received in instalments for Nov'09 are all for one contract...

Since its one contract... another provision is applied:-

Provision to be applied for Nov'09--" The gross amount charged for the taxable service shall include any amount received towards the service before, during or after the provision of service.

I have tried to clear you with provisions. Read it again n again along with lines of question.

Hope i have made myself clear.

I request all members to read that May'10 question before making any remarks. Reply of Mr. Navin ji is not encouraging.

I am replying this on behalf of my friend Vuelve, due to technical problem he is unable to reply and asked me to post this.

2 Like

Nitesh (service) (136 Points)
Replied 29 October 2010

Dear Riswa,

Please read the service tax rules w.r.t. to billing and payment of st liability. Chek when is the service tax liability due and basis. What the service tax rules says about the advance receipt of money. First read and understand the rule.

Solving any practical question becomes easier and simple.

Any advance money recvd should be considered as inclusive of service tax. But have you delivered any services where service tax is applicable and is billed to your customer by you.

Thanx.

CA Riswa Parekh (Practicing) (1591 Points)
Replied 29 October 2010

Thanks to all for replying now the concept is clear.

Santhosh Poojary (SIEMPRE AHÍ PARA TI) (15607 Points)
Replied 03 November 2010

Originally posted by : Faiz Ahmed
	Reasons for May'10 question:- 1-- All the contracts are separate . In other words, they are to be completed at different time for which they have paid advance. 2-- Since its advance and there are no further transactions for that 1 particular contract, how you will account for ST??? Provisions says--- " Total of money & money value has to be treated as inclusive of ST thereon" Here, each contract is total value of money which ha been received in advance. So we do 10.3/110.3 Reasons for Nov'09 question:- 1-- Read the above provision first. Now say, whether the amounts received in Nov'09 question is total money or not?? Answer is IT IS NOT then what to do...?? nothing... Just provide full 10.3% on that advance received because it is not satisfying the provision above. The contract moneys received in instalments for Nov'09 are all for one contract... Since its one contract... another provision is applied:- Provision to be applied for Nov'09--" The gross amount charged for the taxable service shall include any amount received towards the service before, during or after the provision of service. I have tried to clear you with provisions. Read it again n again along with lines of question. Hope i have made myself clear. I request all members to read that May'10 question before making any remarks. Reply of Mr. Navin ji is not encouraging. I am replying this on behalf of my friend Vuelve, due to technical problem he is unable to reply and asked me to post this.