Service tax adjustment

[ssrao barsyl]

Dear Sir, If the client has paid my money on the bills raised and I have paid service tax. Subsequently, the client has disputed the entire amount paid to me and asking me to refund the entire amount mentioning that there is a technical mistake in the work done by me. If I accept the contention of client and reverse the entry in my books, can the service tax paid be adjusted against other future bills where I need to pay the service tax ?

[Rama Krishana]

Yes, you can adjust the amount of service tax so paid with the future liability. You may read the provisions of rule 6(3) of the service tax rules, 1994 which stipulates that, "(3) Where an assessee has paid to the credit of Central Government 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 (calculated on a pro rata basis) 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."

AI Summary

Service tax adjustment: excess tax refunded to client may be adjusted against future service tax liabilities once value is returned. An assessee who has paid service tax and later refunds the value of the taxable service and the service tax to the person from whom it was received may, under rule 6(3) of the Service Tax Rules, 1994, adjust the excess service tax so paid on a pro rata basis against his service tax liability for subsequent periods; the adjustment is contingent on an actual refund of both the service value and the tax to the client.