Liability for payment of tax against advance billing-reg

[N Balachandran]

Sir,

I would like to have the clarify on the following in respect of service tax liability:

1. Invoice towards advance payment of 5% of the contract value raised prior to March 2012 but still the payment for the same  not received from the Customer?

My question is here,

a) Are we liable for payment of Service tax on the same month when we raised the invoice?.  or  When the service tax becomes payable on billing or Realisation of amount from Customer?

b) Since the customer not willing the release the service tax payment as asking us to produce the documentary evidence for having the paid the tax to the dept?.  Is it correct?.

c) Is it legally customer is correct to ask the documentary evidence for having paid the tax?

 2. When we engage subcontractors ( Partnership firm ) for execution of works contract, the service tax has to be shown in their bill 100% of tax amount or only 50% of tax amount as the contractee is liable for remittance of Service tax ( 50% of tax ) under Reverse Charge Mechanism?

Kinldy clarify

Regards

N.Balachandran

[YAGAY andSUN]

You would have to pay the servcie tax on advance payments received by you.

[N Balachandran]

thanks for ur clarification.  My question is here.  The bill was raised before march 2012 but still No payment was received.

When the tax liability will arises?  Based on Billing  or Based payment received?

Regards

 

N.Balachandran

 

[JAMES PG]

As per the  Rule 3 of Point of Taxation Rules, point of taxation shall be the time when the Invoice for the service provided or to be provided is issued.Since advance is received for a service to be provided, Service Tax shall be remitted within the due dates prescribed irrespective of the receipt of payment

[CASeetharaman KC]

Rule 3 of Point of Taxation Rules specifies as under

3. Determination of point of taxation.-

For the purposes of these rules, unless otherwise provided, ‘point of taxation’ shall be,-

(a) the time when the invoice for the service provided or to be provided is issued:

       ²[Provided that where the invoice is not issued within the time period specified in rule 4 Aof the Service Tax Rules,1994, the point of taxation shall be the date of completion of provision of the service.]

(b) in a case, where the person providing the service, receives a payment before the time specified in clause (a), the time, when he receives such payment, to the extent of such payment.

The issue which has been asked by you actually falls under clause (a) so service  tax is liable to be paid when the invoice is issued and as the month is March the payment has to be made by end of March.From your question it seems the payment has not been received however in this case it does not matter as you have already raised the invoice.

If you have already raised the invoice and specified service tax in it that is sufficient proof for the service receiver to take CENVAT. However please ensure that you deposit the amount of service tax with interest @ 18% till the date of payment .

Regarding your query on Works Contract, the service provider should be paying service tax  only 50% of the contract value and he should be showing only the amount of service tax which he pays in his invoice.

[onkar kumar]

what about the question raised  "Is it legally customer correct to ask the documentary evidence for having paid the tax?" 

[YAGAY andSUN]

The answer is 'No'.  Since Rule 9(3) of CENVAT credit Rules, has been strucked off.  You may also refer the article written by Mr. James PG.  Link is being provided as appended below:

[Vijay kumar]

1(a). Yes, you are liable to pay service tax by 31.3.2012 in terms of Rule 3 of PTR, 2011 irrespective of whether or not your customer has made the payment.

1(b)&(c). No. Customer has no legal right to seek documentary evidence, as far as service tax provisions are concerned. However, to provide the same or not depends on the relation between you.

2. Partial reverse charge under Works contract service in terms of Nofn.30/2012-ST applies only when the service provider is an individual, HUF or a partnership firm and the receiver is a body corporate. You have not mentioned the status of your company as a receiver. Anyway, if the said condition is satisfied, the contractee has to show the gross taxable amount, the service tax payable thereon and the 50% tax payable by him in terms of the said nofn, in terms of Rule 4A of STR, 1994. The rest 50% is liable to be paid by you in accordance with the month of payment, if the same is paid within 6 months from the date of invoice (rule 7 of of PTR, 2011 refers)

AI Summary

Point of taxation: invoice issuance triggers service tax liability, payable by due date irrespective of receipt. Under Rule 3 of the Point of Taxation Rules, issuance of an invoice for services-including advance billing-constitutes the point of taxation, making service tax payable by the invoicing month regardless of receipt. An invoice showing service tax suffices for the recipient to claim credit; recipients lack statutory entitlement to demand proof of tax deposit. Partial reverse charge for works contracts applies where the provider is an individual/HUF/partnership and the recipient a body corporate: the contractee declares the gross taxable value and its 50% tax liability under Rule 4A, while the provider accounts for the remaining tax in line with applicable timing rules.