Tax on Advancein the case of contractor

[VENU K]

An audit is happening in the case of a contractor. In audit the only issue is that they have not paid GST on advance received. They have properly paid taxes and reported the bills as and when  they were raised in their monthly returns. Basically they were not aware of the need to pay tax on advances received in case of services.

The department is now saying that for each advance received, they have to pay full tax along with interest. They are not willing to consider the tax paid at the time of raising bills.

Our submission is that only interest needs to be paid for delay and no tax can be demanded.

To take an example

Advance 1,00,000/- received in April

Invoice given in March and tax paid on 1,00,000 in June.

The departments stand is Tax of Rs. 18,000/- plus interest till the date of payment after audit plus penalty should be paid. No credit will be given for Tax paid in June. We can claim it as refund if available.

is this stand justified?

AI Summary

Tax on advances must be declared on receipt; delayed payment attracts interest but not a duplicate tax demand.
Tax on advances for services is payable on receipt; where such tax was not paid immediately but was later paid and reported when invoices were issued, the effect is a delayed payment attracting interest for late payment rather than a separate fresh tax liability. Tax authorities should issue a formal audit memo if they seek to re impose tax; taxpayers should document belated payment, examine input tax credit or refund avenues, and may challenge unjustified duplicate demands.