Applicability of rate of service tax in case of advance payment received and issuance of invoices later on

[samiuddin ansari]

Dear experts,

My query is one of my friend's firm was visited by Audit team for EA-2000 audit for the period from 2014-15, 2015-16 & 2016-17, he is providing works contract service to many body corporate and non body corporate business firms. In some cases, he had received advance payment from the clients. By following the provisions of Point of taxation rules, 2011, he made payment of service tax at appropriate existing rate i.e. 12.36% to the service tax department and also reflected in his ST-3 Returns. However, on completion of service in piece meal, he issued RA bills simultaneously mentioning there in service tax at existing rate, say 14.50% including cess. In fact, he did not discharge tax liability but availed as set off being already tax payment made on original advance amount. The audit team while examining the same, has raised an objection and stated to make payment of differential amount service tax i.e 02.14 % (14.50%-12.36%) with interest. Since, my friend's contention is such that he has already discharged the tax liability at the applicable rate when he received the payment from clients, he need not to pay again the differential amount of tax as mentioned above. Please solicits your valuable views and comments on issue supported with cases, circular, clarification etc.

AI Summary

Point of taxation requires tax at the rate prevailing when the service is provided; differential tax on advances is payable.
Advance receipts are a point of taxation at the date of receipt, but the applicable service tax rate is the rate in force when the taxable service is provided; any differential between tax paid on advances and the rate at provision must be deposited with interest, since rules cannot override the statute.