CHARGE OF SERVICE TAX, TAXABLE SERVICES AND VALUATION

CHARGE OF SERVICE TAX, TAXABLE SERVICES AND VALUATION

1. PRACTICAL QUESTIONS

Question

In October 09, Mr. C, a practicing Chartered Accountant, received 25% of the agreed professional consideration as advance from his client against a particular service which was to be rendered in the month of November 2009. Such service became taxable with effect from 1st February, 2010. He received the balance amount @75% in the month of Feb, 2010. The value of his bill is Rs. 4,00,000.

(a)        What is the value on which service tax is payable

 (b)      Will the answers change if the service was a taxable service with effect from January 2009?

Answer

(a)   25% of Rs. 4,00,000 is not taxable because it is the value of services received as advance for a service which was not taxable at that time. The balance 75% of Rs. 4,00,000 has been received after the services became taxable. However, the taxable event not attracted at the time of rendering the services [i.e. Nov 09].

Hence, the entire amount of Rs. 4.00,000 is not taxable.

 (b)      Yes. The value of taxable service for the month of October, 2009 on advance is Rs. 1,00,000. Service taxable is Rs.10,300 [Rs. 1,00,000 x 10.30%]

Due date of payment of service tax is 5th January. 2010

The taxable service for the month of February 2010 is Rs. 3,00,000. Service tax payable is Rs. 30,900. Due date of payment of service tax is 31st March, 2010.

Question

Amazon Ltd,  provider of a specific service, rendered the service in the month of August, 2010 when such service was not taxable. Payment for such services was received in the month of November, 2010. Such specified service became taxable with effect from 16th October, 2010.

(a)        Is Amazon Ltd. liable to pay service tax?

(b)      If so, on what value?

(c)        If not, why not?

Answer

(a)        No. Amazon Ltd is not liable to pay service tax.

(b)       Value of taxable service is Nil.

(c)        Taxable event means the time of rendering the service. Such specified service is not taxable service at the time of service rendered i.e. in August, 2010.

Question

For certain taxable services rendered by Nidhi, VAT as well as service tax is leviable. The following bill was raised by Nidhi on Akanksha (service receiver) on 10-3-2010:

Particulars	Rs.
Amount of bill	50,000
VAT	400
Total	50,400

On 31-3-2010, Nidhi receives a sum of Rs. 40,000 in full settlement. What is the service tax payable? You are informed that Akanksha has incurred hotel bills of Rs. 5,150 on behalf of Nidhi. Clearly indicate the provisions considered in arriving at the service tax payable.

Answer

The value of taxable services is Rs. 50,000 plus consideration received in kind as per the valuation rules.

Service tax payable = Rs. 5,150

[Rs. (50,000 + 5,150) = Rs. 55,150 x 10.3/110.30

Question

Calculate the net service tax payable under the provision of rule 2A of the Service tax (Determination of Value) Rules, 2006 relating to determination of value of services in the execution of a works contract from the following particulars:

(i)         Gross amount for the works contract (excluding VAT) Rs. 3,00,000

(ii)        Value of goods and materials sold in the execution of works contract Rs. 50,000

(iii)       CENVAT credit on (ii) above Rs. 5,000

(iv)       Service tax paid on input services Rs. 5,000

(v)        CENVAT credit on capital goods issued in the provision Rs. 6,000 of works contract service

(vi)       Service tax rate 10.30%

            Make suitable assumptions and provide explanations where required.

Answer

Particulars	Rs.
Gross amount charges (excluding VAT)		3,00,000
Less: Value of goods		50,000
Net amount subject to service tax		2,50,000
Service tax @ 10.30% on Rs. 2,50,000 =		25,750
Less: CENVAT credit
On input service =	Rs. 5,000
On Capital Goods Rs. 6,000 x 50% =	Rs. 3,000	8,000
Net service tax payable		17,750

Notes: CENVAT credit of Rs. 5,000 on value of goods sold in the execution of works contract shall not be available.

Question

XYZ service was made taxable w.e.f. 12-05-2010. Contract for providing Service was entered into prior to the effective date i.e., 12-05-2010. Bill has been raised and the value in full received from the customer prior to 12-05-2010. However, services were rendered after 12-05-2010. Are the services taxable?

Answer

Taxable event is the rendering of services. Receipt of advance money is not a taxable event. Therefore, these services are taxable at the time of rendering. However, taxable event in this case is entering into contract or rendering the actual services whichever is earlier. Hence, no service tax liability exists in this case.

Question

Mr. Rishabh, a proprietor rendered the services for which he received Rs. 6,00,000 by an account payee cheque as advance while signing a contract for providing taxable service. He received Rs. 3,00,000 by credit card while providing the service and another Rs. 5,00,000 by a pay order after completion of service on 28th February, 2010. All three transactions took place during financial year 2010-11. Give him advice about his liability towards value of taxable service and the service tax payable by him.

Answer

Computation of taxable service of Mr. Rishabh for financial year 2010-11

Particulars	Rs.
Advance received by an account payee cheque	6,00,000
Amount received through credit card	3,00,000
Amount received by a pay order	5,00,000
Value of taxable service	14,00,000
Calculation of service tax liability:
Service tax=Rs. 14,00,000 x 10.30%	1,44,200

         

Notes:

1. Money includes any cheque, pay order, currency, promissory note, letter of credit, draft, traveller’s cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value.
2. Gross amount charged includes payment by credit card, cheque, deduction from account and any form of payment by issue of credit notes/debit notes and book adjustment.

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