Services Tax – The VALUE and PAYMENT confusion
Rule 6 of the Service Tax Rules 1994, deals with payment of service tax. This rule has been substituted vide Notification No 7/2005 ST dated 1.3.2005. The new sub rule (1) of Rule 6 reads:
(1) The service Tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the calendar month in which the payments are received, towards the value of taxable services.
A plain reading of the above rule implies that if an assessee raises a bill for Rs 1,00,000 towards the value of service rendered in a month and if he receives a payment of Rs 75,000, then, the service tax payable is on Rs 75,000 only as it is the payment received.
Let us now go to the third proviso to the above sub rule. It reads as
Provided also that the service tax on the value of taxable services received during the month of March, or the quarter as the case may be, shall be paid to the credit of the Central Government by the 31st day of March of the calendar year.
So, if an assessee renders a service worth Rs 1,00,000 in the month of March and receives payment of only Rs 75,000 in the month of March, whether he has to pay tax on Rs 1,00,000 or Rs 75,000?
The above question arises because the words used in the proviso are not payment received, but the value received. Is there any difference between these two? Yes, said the Board in Circular No 65/14/2003 dated Nov 5, 2003. The relevant part is reproduced as under:
It may be noted that rule 6 only prescribes the procedure of payment of tax. The liability to tax is created by section 66 of the Finance Act, 1994 as amended from time to time. The liability to pay tax is fastened on the service provider by section 68 of the said Act. These two sections read together imply that service tax is payable by the service provider on the value of taxable services. Thus if a service provided is taxable, tax has to be paid on its value. Section 67 also clarifies value of service as the amount charged for the taxable service by the service provider. In other words, an amount becomes value of taxable service only when it has a nexus with the service provided. That is the reason why the expression used in rule 6 is “value of taxable services” and not amount. The implication is that the tax has to be paid on the value of taxable services attributable to the service provided in a month/quarter as and when it is received. Thus, rule 6(1) can not be read in isolation. When read along with the provisions of the Act, it becomes clear that where the value of taxable service has been received in advance for a service which became taxable subsequently, service tax has to be paid on the value of service attributable to the relevant month/quarter which may be worked out on pro rata basis.
Going by the above Board Circular, for the month of March, whether tax has to be paid on the value of the service ( value = amount charged for the taxable service) or payment received? And if it is on the amount charged, how many Departmental officer and assesses know about this implication and how many have discharged tax on the amount charged in the month of March? If it is otherwise, why can’t the above proviso worded “ payment received “ instead of value received to avoid confusion?