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 

 

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.