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Mandatory Penalty for payment of Service Tax Manually?


Service tax paid under reverse charge and collected from service provider

[A] In the given example, the value of service is shown as Rs.1000, service tax payable by recipient is Rs.124, which is collected from the provider. Effectively, the service provider got Rs.876 (1000 - 124) and recipient paid Rs.1000 towards value of service + service tax payable thereon.

[B] Instead of following this practice, suppose, the service provider had raised invoice of Rs.890 and the recipient had paid service tax of Rs.110 (@12.36%) without collecting it from service provider, there would be no problem, as the recipient has to pay the same amount (Rs.1000), the provider gets more amount (Rs.890 instead of Rs.876) and the department gets less service tax (Rs.110 instead of Rs.124).

[C] As per Section 67(2) prescribing valuation of taxable services, “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.” This principle is known as ‘cum-duty’ concept in central excise. By applying this in the give example, Rs.1000 can be treated at ‘cum-tax’ value of the service provided. Therefore, it is felt that the correct method should be [B] instead of [A].

[D] Payment of 6% amount under Rule 6(3)(i) of CCR, 2004, is in nature of reversal of credit attributable to inputs used in exempted goods, so it should not be recovered from buyer. If a manufacturer clears exempted goods worth Rs.1000 and recovers the 6% amount i.e. Rs.60 paid/reversed by him from the buyer, such amount should be included in the assessable value of the exempted goods according to principles of Valuation. So, the manufacturer has to pay 6% of Rs.1060, i.e. Rs.63.60 instead of Rs.60. Again if he recovers the differential Rs.3.60 from buyer, 6% on it has to be paid and so on …! Interested readers may read analysis of Unison Metals Vs CCE - 2006-TIOL-1337-CESTAT-DEL-LB published at http://www.taxindiaonline.com/RC2/NewsDesc.php?MpoQSrPnM=NDQyMA==

These are personal views.

Shvetal Parikh 19/02/2015

 

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