Page 106 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Unit 6: Service Tax

How to find out the Service tax liability if tax is not collected from customer? Notes

It is the liability of the service provider to pay service tax even if tax is not collected from client.
In such cases, total bill amount is considered as inclusive of tax and liability is ascertained by
making back calculation.
To find out value of taxable service use the following formula

Gross amount charged × 100
Value of taxable service =
100 Rate of tax
You can calculate service tax liability from the value of taxable service or assessable amount.
For example you have billed 100000.00 and no tax is collected from customer your taxable
amount and service tax is calculated as follows
100000 × 100
Value of taxable service = 90662
110.3

Service tax liability 90662 10.3% 9338.00

Practical Problems

Problem 1: With reference to banking and other financial services, state whether service tax is
applicable in the following cases:
(i) Services provided by State Bank of India to the Central Board of Direct Taxes in relation to
collection of advance income-tax.
(ii) Discount charged by SB Ltd., a non-banking financial company, on the facility of bill
discounting provided by it. Such discount is shown separately in the bill issued for this
purpose.
(iii) Rich Bank, a Scheduled Bank, purchases foreign currency from Generous Bank, another
Scheduled Bank
Solution:

(i) Service tax will not be applicable in this case as Notification No. 13/2004 ST dated 10.09.2004
exempts the taxable services provided by a banking company or a financial institution
including a non-banking financial company, or any other body corporate or ay other
person to the Government of India or a State Government in relation to collection of any
duties or taxes levied by the Government of India or a State Government from the whole
of service tax leviable thereon.
(ii) Service tax will not be applicable in this case as Notification No. 29/2004 ST dated 22.09.2004
exempts the value of taxable service provided to a customer, by a banking company or a
financial institution including a non-banking financial company, or any other body
corporate or any other person, in relation to:
(a) overdraft facility;

(b) cash credit facility; or
(c) discounting of bills, bills of exchange or cheques,
which is equivalent to the amount of interest on such overdraft, cash credit or, as the case
may be, discount from the service tax subject to the condition that the said interest amount

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