The scope of service tax is being extended every year by inserting new categories in the existing provisions of Chapter V of the Finance Act, 1994.

After each insertion, the common query is raised about the taxability of amount received in advance for the services to be provided before inclusion of such services in the service tax net.

In the present case, reported in 2008 -TMI - 31202 - HIGH COURT UTTARAKHAND, the facts were under:

-          'Scientific and Technical Consultancy' was brought under the net of the service tax w.e.f. 16th July 2001

-          A letter of intent for providing service was issued on 10-8-2000

-          Payment of Rs. 1.03 lakhs (out of Rs. 2.20 lakhs) was received prior to 16-7-2001.

-          Department has issued SCN to demand service tax on Rs. 2.20 lakhs.

-          Draft project report was prepared prior to the date on which the service was brought under the net of service tax?

In this matter, honorable HC held that:

"----------- No doubt, final project report may have been submitted by the respondent assessee after 16-7-2001, but that by itself does not make the assessee liable to pay the service tax in respect of the service provided prior to 16-7-2001. Also, it is to be kept in mind that nature of service tax is that of an indirect tax, and if the respondent assessee is made to pay service tax in respect of the service already provided by him prior to 16-7-2001, it is not left with option to charge the indirect tax from the customer, as the payment was to be made by the party to the assessee as per the contract only."

 

(For full text of judgment - visit 2008 -TMI - 31202 - HIGH COURT UTTARAKHAND)

Service tax on pre-inclusion services: levy not payable for services provided before their taxable introduction, cannot be passed to customer. Services performed and paid for before the date on which they were brought within the service tax net are not made taxable merely because a final report or subsequent acts occurred after inclusion; an indirect tax imposed on the supplier for services already provided prior to the levy cannot be recovered from the customer where payment was contractually made before inclusion.