Page 107 - DCOM308_DCOM502_INDIRECT_TAX_LAWS

Indirect Tax Laws

Notes is shown separately in an invoice, a bill or, as the case may be, a challan issued for this
purpose.
(iii) Service tax will not be applicable in this case as Notification No 19/2009 ST dated 07.07.2009
exempts taxable services of the nature referred to in sub-clause (zm) or (zzk), as the case
may be, of clause (105) of section 65 of the Finance Act, provided to a Scheduled bank, by
any other Scheduled bank, in relation to Interbank transactions of purchase and sale of
foreign currency from the whole of the service tax leviable thereon.
Problem 2: ABC & Co. received the following amounts during the half year ended 31-03-2012 (i)
For services performed prior to the date of levy of Service tax - 3,50,000 (Assume service tax
was levied from a specified date by change of law) (ii) Advance amount received in March, 2012
- 75,000 (No service was rendered and the amount was refunded to the client in July 2012) (iii)
For free services rendered to customers, amount reimbursed by the manufacturer of such product
(for the period after the imposition of service tax) - 50,000 (iv) Amounts billed and on which
service tax is payable (excluding the items (i) to (iii) above) - 14,26,500. - Calculate the service
tax liability duly considering the threshold limit.

Solution: In absence of any specific information, it is presumed that service tax is not charged
separately. Hence, the amounts received are presumed to be inclusive of service tax. Tax liability
of each transaction is as follows - (i) No tax payable (ii) Tax is payable on advance of 75,000 as
service tax is payable by 31st March itself. If assessee gets refund later, he can adjust the service
tax paid earlier in subsequent return (iii) Tax is payable on 50,000. Even if these are termed as
'free services', they are not actually free as the amount is received for that service from
manufacturer (iv) Taxis payable on 4,26,500 as assessee can claim threshold exemption of
10 lakhs. - Thus, tax is payable on 5,51,500 (75,000 plus 50,000 plus 4,26,500). The amount is
inclusive of service tax. Hence, net value for service tax is 5,00,000 (5,51,500 × 100/110.30).
Hence, service tax payable is 50,000. Education cess @ 2% - 1,000. SANE cess - 500. Total
service tax payable 51,500.
Problem 3: X & Co. received the following amounts (i) Date of Receipt 20-04-2011- 1,00,000 for
services rendered in July, 2011 (ii) Date of Receipt 30-06-2011 - Advance for services to be
rendered Z5,00,000. Services were rendered in July and August, 2011 (iii) Date of receipt 5-8-2011
- 50,000 for services rendered in April, 2011 for which billing was done on 1-8-2011 (iv) Date of
receipt 10-09-2011 - Advance for service 3,50,000. A sum of 50,000 was refunded in April, 2012
after termination of Agreement. For the balance amount, service was provided in September,
2011. Compute: (i) The amount of taxable service for the first two quarters of the Financial Year
2011-12, assuming the assessee is eligible for payment of service tax on quarterly basis (ii) The
amount of Service tax payable.

Solution: (i) and (ii) Service tax is payable on advance received also. Hence, for quarter April-
June 2011, service tax is payable on advance of 6,00,000.
(iii) If service was rendered in April, 2011, that will be 'Point of Taxation' even if billing is done
in August 2011. Hence, service tax on 50,000 is payable in April-June 2011 quarter.
These amounts are to be taken as inclusive of service tax and back calculations should be
made. Hence, for April-June 2011, gross amount receives on which service tax is payable
is 6,50,000. Assessable Value of service is 5,89,301.90 [6,50,000 × 100)/110.30]. Service tax
@ 10% is 58,930.19. Education cess @ 2% is 21,178.61 and SAHE cess @ 1% is 589.30
(Total 6,50,000).

(iv) For quarter July-September 2011, value of service is 3,50,000. Hence, 'value' of service is
3,17,316.40 [(3,50,000 × 100)/110.30]. Service tax @ 10% is 31,731.64. Education cess @ 2%
is 634.64 and SAHE cess @ 1% is 317.32 (Total 3,50,000).

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