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Service tax reversal

Sowmya P K (Chartered Accountant) (251 Points)

14 December 2011

Hi All

Please answer this in light of the recent Service tax amendments:

Company provides volume discounts to its customers on achieveing a pre-determined turnover. Volume discount is given by way of credit notes.

Whether service tax can be reversed on the same?

Appreciate an early reply.

Thanks in advance

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3 Replies

CA Ketan Waghela (Partner at Elite Educare) (356 Points)
Replied 14 December 2011

Sowmya ji, if you allow me to answer:

The ST on the same can not be reversed back, as per point of taxation ST is to be charged on grossed up amount (accrual basis) & not on the net amount.

e.g.

1. Mr. X (within 14 days of their transaction) issued bill for Rs.110/- (including ST) on Y, as per accrual basis Mr. X have to pay ST on full Rs.100/- on 5^th or 6^th of the next month even if Y does not make payment.

2. Continueing with above example; say credit note is being issued for Rs.10/- then also ST is to be paid on grossed up amount.

So, in this quest. ST can not be reversed back,

If it is be taken on receipt basis (as it was earlier) then ST can be reversed as amount received is only Rs.90/-

Here my point is what if Y never make payment, Mr.X has to pay ST.

Members please correct me if I’m wrong…

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 15 December 2011

volume discounts are incentives or indirect way commisson paid to dealers, here the principal invoice taxes are intact plus the amount which is offered as discount attract service tax on commission amount.

Sowmya P K (Chartered Accountant) (251 Points)
Replied 15 December 2011

Thank you all..

In continuation, what if the credit note issued is adjusted against future billing to the same customer? What will be the tax liability of the future billing? Again on the grossed up amount, or net of credit note issued?