Adjustment of excess paid service tax.

[Sanjeev Chauhan]

Respected All,

Kindly guide,

Suppose, a builder booked several flats in 2011-12 and received partial amount as advance from customers and also paid service tax on the same in 2011-12 (he did not collect service tax from their customers). 

In 2012-13, booking of 3 flats got cancelled and the builder return the advance received from customers (did not return s.t., as he did not collect it).

Now, the query is that , can he take the credit of the s.t. paid on the advance of cancelled flats in 2012-13 under Rule 6(3) of Service Tax Rules.

As per said Rule 6(3), service tax in respect of a taxable service, which is not so provided by him either wholly or partially for any reason, the assessee may adjust the excess service tax so paid by him against his service tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received.

Is subsequent period u/r 6(3) will be the very next month/ quarter or otherwise? In the instant case, what is the subsequent period:

1. Subsequent to the date of excess payment of s.t ? ;

or

2. Subsequent to the cancellation of flats ?

 Ultimately, whether the builder is eligible to take the credit of the above said excess paid service tax or not?

Regards.

[Brijesh Verma]

Dear Sanjeev

Please note:

1. Subsequent Period would mean the period after refunding of the amount i.e. the period which would fall after the date on which such an excess arose by virtue of refund of money.
2. Rule 6(3) has already been amended w.e.f. 1.3.2011 and reads as:
   
   (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 for the service provided to the person from whom it was received; or]
   
   (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.
3. Hence from the above amendment, the problem that "What means subsequent period" has been put to an end as from 1.3.2011 the excess amount gets converted into Cenvat Credit which can get carried forward for any period of time.
4. Lastly, you have mentioned that your client has paid tax without recovering the same from his customers i.e. from own pocket...here you are requested to also update us if the calculation was done by using 'back calculation' considering the amount as cum tax???

[Surender Gupta]

To my mind subsequent period is the date after the date on which you refund the amount to the buyer post cancellation of allotment.

AI Summary

Excess service tax adjustment: excess paid converts to Cenvat credit after refund or issuance of a credit note. After the amendment, when an assessee has received payment or issued an invoice for a service not provided and has refunded the payment or issued a credit note for the unprovided service, the excess service tax paid may be taken as Cenvat credit and carried forward; the relevant subsequent period is the period after the refund or issuance of the credit note, not necessarily the immediately following return period. Confirmation is needed whether the tax was computed on a cum-tax basis when paid from the assessee's own funds.