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CUM TAX VALUE FOR SERVICE TAX |
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CUM TAX VALUE FOR SERVICE TAX |
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Service tax is an indirect tax. As per this system of taxation, the tax borne by the consumer of services is collected by the assessee and remitted to the Government. Sec.66 of the Finance Act, 1994 (hereinafter referred to as 'Act') provides that there shall be levied service tax at the rate of twelve percent of the value of taxable service. Non recovery of service tax is an offence under Sec.73 of the Act. If any person comes to know the liability of levying service tax on the services provided by him whether he is liable under Sec.73 for non levying of service tax. What would be the relief to the service providers in such cases? The Delhi tribunal in 'Panther Detective Services V. Commissioner of Central Excise, Kanpur 2006 -TMI - 647 - CESTAT, NEW DELHI held that the only relief in regard to valuation that the appellants would be entitled to treat the total receipts as inclusive of service tax. It is accordingly ordered that the Revenue shall recompute the tax amount in these appeals treating the total receipts as cum-tax. In 'Bhagawati Security Services V. Commissioner of Central Excise, Meerut - I' 2006 (3) STR 763 (Tri. Del) the appellants have not raised any service tax bill to their service receivers. They have paid service tax calculated on these invoices they have not received any payment of this from their client. The tribunal found that there was a force in the appellant's contention that if service tax is to be paid, it has to be worked out on the basis of gross amount received by them as being inclusive of service tax. In 'Commissioner of Central Excise V. Maruti Udyog Ltd., - 2002 (141) ELT 3 (SC) the Supreme Court granted the cum-duty benefits to the assessees. In many a case the said judgment was cited in favor of the assessees. The main contention put forth in these cases by the Revenue was that the provisions of central excise cannot be made applicable to service tax. The service tax is on the value of taxable services rendered and therefore service tax has to be collected on that value only and the value of taxable services cannot be said to include the tax also. Explanation (2) was inserted to Sec. 67 of the Act with effect from 10.9.2004 which provides that if the gross amount charged by the service provider is inclusive of service tax the value of taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged. The Finance Act, 2006 omitted the above said explanation and inserted clause 2 to Sec. 67 with effect from 18.04.2006 which provides that where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as with the addition of tax payable, is equal to the gross amount charged. In 'In Re. Beardsell Ltd., 2007 (6) STR 76 (Commr. Appeals)' the tribunal held that the plea of the appellant for extension of cum-duty benefit, the provisions for cum-duty/tax value was brought into force only during 2004 by way of explanation to Sec. 67 which takes only prospective effect i.e., 10.9.2004. The case law relied by the appellant is out of context since the case is related to Central Excise matter. The tribunal is of the view that the applicant is eligible for the cum-duty benefit from 10.9.2004 and not entitled for prior period. Even though the Commissioner (Appeals) did not grant relief for cum-tax benefit, the tribunals offered relief to the assessees. In 'Gem Star Enterprises (P) Ltd., V. Commissioner of Central Excise' 2007 (7) STR 342 (Tri. Bangalore) the appellants are not disputing the liability towards service tax. They only requested to treat the amount received by them from their customers as cum-tax amount and to re-compute the tax liability. The Commissioner (Appeals) has not appreciated the stand of the appellant on the ground that Explanation 2 to Sec. 67 of the Finance Act, 1994 was inserted only 10.9.2004 and the same cannot be made applicable in the present case. The tribunal did not agree with the Commissioner (Appeals). This principle is applied in Central Excise cases also in the light of 'Maruti Udyog Ltd.,' (Supra). The same principle is applied here also. In 'Bellary Computers V. Commissioner of Central Excise (Appeals), Mangalore - 2007 -TMI - 2305 - CESTAT, BANGALORE there is a request from the appellant that they had not collected any service tax from their customer. Therefore they requested to give them the cum-duty benefit. In other words, there is a request from the appellant that while calculating the duty liability gross amount collected for services should be treated as including the service tax. The tribunal remanded the matter to the original authority. In FAQ issued by the CBE & C & DG ST during Nov. 2007 one question and answer is on cum-tax which is reproduced as follows: How does one work out the service tax liability and pay the same to the Government in case the customer or a client pays only the value of the service amount but not the service tax amount mentioned in the bill? Ans: Service tax is payable on amount realized. In the given situation, the amount so realized from the client would be treated as gross amount inclusive of service tax and accordingly the value of taxable service and service tax liability are worked out as follows: For Example - Value of taxable services (AV) =Rs.1,000 Amount Billed = Rs.1000 + ST 123.60 = Rs.1123.60 Amount paid = Rs.1000/- Treat Rs.1000 as gross amount inclusive of service tax. In case the gross amount including service tax received is, say, Rs.1000/- In such case the service tax liability may be arrived at by reverse calculation in the following manner: AV = 1000x 100/112.36 = Rs.889.996 (Rs.890/-) Amount of service tax + Education Cess payable = Rs.110/- If the recipient of service pays the full billed amount later the differential service tax must be paid forthwith. The following are the latest case law in regard to cum-tax: It is seen from records that the respondents had not collected service tax separately. It is not the case of the Revenue that they collected service tax and did not pay the same to the Government. In these circumstances the principle enunciated in the case of 'Maruti Udyog Ltd.,' (Supra) has been followed by the lower authority to grant the cum-duty benefits to the respondents. We cannot find any strong grounds for differing from the lower authority or Commissioner (Appeals). Though the value of services has been received from the clients but no service tax has been received and hence the appellants have not paid the tax. The tribunal held that the value of services received from such clients has to be taken as the value plus tax and accordingly a bifurcation has to be done to determine the tax amount payable on such receipts. JSR Tutorials V. Commissioner of Central Excise, Allahabad 2008 (10) STR 71 (Tri.Del) The appellant received amount prior to imposition of tax whereas the service has been provided after the imposition of tax. The matter is remanded to the adjudicating authority to requantify the demand after taking into consideration the fact amount received should be treated as cum-tax and also to recalculate the duty on pro rata basis. When the amount is collected for the provision of services, the total compensation received should be treated as inclusive of service tax due to be paid by the ultimate consumer of the services unless service tax is also paid by the consumer separately. So considered, when no tax is collected separately, the gross amount has to be adopted to quantify the tax liability treating it as the value of taxable service plus service tax payable.
By: Mr. M. GOVINDARAJAN - September 19, 2008
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