adjustment of service tax on foreign currency advances

[Gsv Prasad]

Background 

1. Assessee is a foreign company executing projects in India 

2. All its billings to the clients are in Foreign currency 

2. Assessee receives advances in  FC from its Indian client

3. Assesse e deposits service  tax payable on such advances after converting the FC into Rupees at prevailing exchange rates

4. Assessee adjusts these FC against its  regular invoices raised susequently  for services rendered and pays service tax on the adjusted FC invoices ( ie gross invoice  in FC less prorata advance in FC  )

Issue 

5. Service tax officials  insist on fresh conversion of the  FC advance  sought to be adjusted at  rates prevailing on adjustment dates 

6. contention of Assessee is that service tax liability on advance has  already been adjusted at time of receipt and no further valuations are called for .

Reference of similar cases would be appreciated 

 

[CASeetharaman KC]

It is clearly provided that service tax is payable on Advances received upon reciept irrespective of the date of provision of service or the date of raising of the invoice. This is clearly specified in the Point of Taxation Rules,2011.

As per these Rules point of taxation is -

  ♦  the time when the invoice for the service provided or agreed to be provided is issued;

  ♦  if invoice is not issued within prescribed time period( 30 days except for specified financial sector where it is 45 days) of completion of provision of service then the date of completion of service;

  ♦  the date of receipt of payment where payment is received before issuance of invoice or completion of service.

After such clear provisions if the department is trying to take a different rate of exchange as on the date of issuance of the invoice probably because of the fact that it is advantageous to revenue , I think it is ill founded and should not be accepted. The contention of the department should not be accepted.

[Guest]

please let me know if this query is resolved ?

AI Summary

Point of Taxation principle: service tax on foreign-currency advances fixed at receipt, not revalued on later adjustment. Service tax on foreign-currency advances is determined at the date of receipt under the Point of Taxation rules; tax must be computed and deposited after converting the advance at the exchange rate prevailing on receipt, and a subsequent adjustment of that advance against invoices does not create a new taxable valuation requiring reconversion at the adjustment-date exchange rate.