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Service tax treatment in case of Bad Debts

Chinmay (Accounts Professional) (356 Points)

19 November 2010

Hi, if the debtor converted in to the bad debts. What was the accounting treatment?

Service tax charged earlier but not paid due to payment not received!!!!

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8 Replies

Selvakumar Selvaraj (Chartered Accountant) (1386 Points)
Replied 19 November 2010

When your Debtors turns Bad. It is sure that you are going to get nothing. Service tax to be paid on collection basis. When no collection of Consideration for services provided then nothing payable to the Govt. You can reverse the service tax entry.

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sachin kakkar (CA) (188 Points)
Replied 24 November 2010

Originally posted by : Selvakumar.S
	When your Debtors turns Bad. It is sure that you are going to get nothing. Service tax to be paid on collection basis. When no collection of Consideration for services provided then nothing payable to the Govt. You can reverse the service tax entry.

completly agree to above post

V K BHALLA (MD) (22 Points)
Replied 03 February 2011

Originally posted by : sachin kakkar

What about TDS deducted by him? Is there a liability to pay service tax on TDS, if the payment not received.

V.K. Bhalla

Originally posted by : Selvakumar.S

When your Debtors turns Bad. It is sure that you are going to get nothing. Service tax to be paid on collection basis. When no collection of Consideration for services provided then nothing payable to the Govt. You can reverse the service tax entry.

completly agree to above post

vivekanandan.p (STUDENT) (23 Points)
Replied 20 February 2016

HI, If my debtor turns bad debts what about service tax paid by me earlier,

"Goods sold 2 years back"

Sachin Gupta (7 Points)
Replied 20 February 2016

Even if 2 years have elapsed, you can reverse the entry and adjust the liability of service tax against your present liability.

vivekanandan.p (STUDENT) (23 Points)
Replied 23 February 2016

Thank you.

Venkatanarayana GM (Partner associate at Hiregange & Associates) (1279 Points)
Replied 24 February 2016

Dear Sir,

Extract of Rule 6(3) of Service tax rules

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, 44b[or where the amount of invoice is renegotiated due to deficient provision of service, or any terms contained in a contract]44b, the assessee may take the credit of such excess service tax paid by him, if the assessee.-
44c[(a) has refunded the payment or part thereof, so received for the service provided to the person from whom it was received; or]44c
(b) has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued.]44

My comments

For example, if the service is already provided and the invoice has also been issued, service tax would have been paid on the same, at the time when the service is provided or at the time when the invoice is raised, whichever is earlier. But if the payment is not at all received subsequently, there is no provision to claim adjustment / refund of the service tax already paid. Such service tax could not be covered under Rule 6 (3) of the Service Tax Rules, 1994 as the service has been provided.

I conclude saying that, no tax can be adjusted/refunded on account of Bad Debts.

Venkatanarayana G.M

venkat @ hiregange.com

9620116162