Taxability on Internet Telephony service

[Asked by Guest]

A company has collected service tax on Internet Telephony for all these years and has now come to know that service tax is applicable on this service only from 1st May 06. Now, a part of the amount collected has not yet been deposited. 1) Should this amount be refunded to the customers or paid to the Service Tax Deptt. 2) As service tax is deposited on collection basis, for the debtors still outstanding, should the service tax portion be collected at all or can revised invoices be raised, nett of service tax, even for prior years?

[Surender Gupta]

For the amount not deposited with the department, you have both the options either to deposit or refund to the customers. However, in the present case, to avoide the litigations in future in respect of proportionate value of services, you are advised that instead of refund to the customers, deposit the same with the revenue.

AI Summary

Service tax on Internet telephony: deposited collections should be paid to revenue rather than refunded to avoid litigation.
Service tax collected on Internet telephony before its effective applicability may either be refunded to customers or deposited with the revenue. The advising position recommends depositing the retained service tax with the revenue rather than refunding, to avoid future litigation over proportionate value of services and to mitigate dispute risk regarding outstanding debtors and retroactive invoice adjustments.