Understanding accounts and accounting for service tax
November, 19th 2014
Need for Accounting
Since all taxable services are commercial in nature, accounting becomes mandatory for all the concerns or firms or commercial establishments providing the taxable services under Service Tax. The accounting or maintenance of accounting would enable the service providers to assess the value of service providers to assess the value of service provided, Service Tax liability and business gains and losses. The nature and method of accounting would depend upon (i) the status of the service providers, i.e., whether it is a sole proprietor, partnership firm, association of persons, society, company, etc., and (ii) nature of its business. The method of accounting can also be either on cash basis or mercantile basis at the option of the assessee but it should be consistently followed. Companies Act, 1956 provide for mercantile or accrual method of keeping books of accounts.
Assessees providing services from multi-locations (from more than one premises) can have centralized accounting or billing system in respect of such services. Under centralized accounting system, bills are raised from various branches of the assessee and are accounted for at one office of the assessee. In such cases, assessee can obtain a single registration for the purpose of Service Tax. In such cases, Form ST-3 should be accompanied by the following documents / information -
(a) A monthly statement branch-wise based on the daily/monthly sales receipt submitted by the branch offices to the main office.
(b) Total Service Tax payable based on consolidated monthly statement showing branch-wise receipts.
(c) Monthly Statements of centralized office with the branch reports and payment details.
Sub-rule (2) of Rule 4 of Service Tax Rules provide that where an assessee is providing taxable services from more than one premises and has centralised accounting system in respect of such services rendered to clients from each such premises, the Commissioner of Central Excise may permit such assessee to obtain a single registration for premises from where such centralised accounting is done. Under centralised accounting system, bills are raised from various branches of the assessee and are accounted for at one office of the assessee. W.e.f. 15th April 2005, Service Tax Rules, 1994 have been amended to enable registration of more than one premises by a service provider having centralized billing or centralized accounting system. If centralized billing or accounting system are located in one or more offices or premises of service providers, the assessee shall have the option to register such premises or offices from where such centralized billing or accounting is done or located. In such cases, assessee may be having more than one registration under the centralized accounting or billing system.
Centralized registration can also be opted where a person liable to pay Service Tax receives services in more than one premises or offices or is having more than one premises or offices, which are engaged in relation to services in any manner making such person liable for paying Service Tax and has centralized billing system or centralized accounting system in respect of such service, and such centralized billing or centralized accounting systems are located in one or more premises, he may, at his option, register such premises or offices from where centralized billing or centralized accounting systems are located.
Books of Accounts and Accounting Records
As per Service Tax Rules, 1994
According to Rule 5 of Service Tax Rules, 1994, records include computerized data and means the record as maintained by an assessee in accordance with the various laws in force from time to time. Records maintained as such shall be acceptable to Central Excise Officer. Every assessee is required to furnish to the Central Excise Officer at the time of filing his return for the first time a list of all accounts maintained by the assessee in relation to Service Tax including memoranda received from his branch offices. This intimation may be sent alongwith a covering letter while filing the service tax return for the first time.
In Sterling Hoffman Software Consultant (P.) Ltd. v. CCE, Vadodara 2013 (4) TMI 239 - CESTAT, AHMEDABAD, it was held that computerised accounts are acceptable under service tax law. As such, where computerized accounts are kept, verification of admissibility of refund in respect of inputs services used for export should be done from such accounts.
The assessee should maintain such records as would enable him to –
(i) calculate value of taxable services as per provisions of section 67;
(ii) calculate service tax liability correctly;
(iii) ensure that proper credit of service tax on input services is availed.
In Kapilansh Dhatu Udyog Pvt. Ltd. v. CCE, Nagpur 2011 (9) TMI 486 - CESTAT, MUMBAI,where assessee maintained proper records and book of accounts, it was held that there could be no suppression of facts. The suppression was not borne out by the records.
Rule 4A prescribes that taxable services shall be provided and input credit shall be distributed only on the basis of a bill, invoice or challan. Such bill, invoice or challan will also include documents used by service providers of banking services (such as pay-in-slip, debit credit advice etc.) and consignment note issued by goods transport agencies. Rule 4B provides for issuance of a consignment note to a customer by the service provider in respect of goods transport booking services.
These documents should disclose the required information about service provided or agreed to be provided, service provider and receiver of service.
Rule 4A prescribes that taxable services are to be provided or credit has to be distributed on invoice, bill or challan only. Such documents should be serially numbered and shall contain -
(i) name, address and registration number of service provider,
(ii) name and address of service receiver,
(iii) description, classification (omitted w.e.f. 1-7-2012) and value of taxable service, and
(iv) service tax payable thereon.
In case of banking services, such details like serial number and address of person may not be available. In case of goods transport services, consignment note or any other document containing the prescribed particulars will also be included in such documents. Similar requirement will have to be fulfilled by input service distributors. W.e.f. 1st April, 2005, the invoice/challan/bill etc. have to be issued within 14 days from the completion of provision of services or receipt of payment whichever is earlier (vide Notification No. 7/2005-ST dated 1-3-2005).
Rule 4A was amended vide Notification No. 3/2011-ST dated 1.3.2011 w.e.f. 1.4.2011, prescribing that invoice or bill or challan shall have to be issued within fourteen days of provision of service or receipt of payment towards the value of such taxable service, whichever is earlier. This implies that service provider need not wait for completion of service but raise services at the stage of provision of service. W.e.f. 1-4-2012, invoice is required to be issued within a period of thirty days (45 days in case of banking companies, NBFC). The service shall be deemed to be provided as per Point of Taxation Rules, 2011.
Rule 4B provides that any goods transport agency which provides goods transport services shall issue a consignment note to the customers in prescribed proforma containing the following information: –
(a) Serial number
(b) Name of the consignor and consignee
(c) Registration number of the goods carriage in which the goods are transported
(d) Details of goods transported
(e) Details of the place of origin and destination
(f) Person liable for paying service tax whether consignor, consignee or the goods transport agency.
Preservation and Inspection of Records
W.e.f. 1-3-2006, Service Tax Rules, 1994 were amended vide Service Tax (Amendment) Rules, 2006 vide Notification No. 05/2006-ST dated 1.3.2006 to provide as follows:
Rule 5(3) makes it obligatory for an assessee to preserve records at least for a period of five years.
Rule 5(4) makes it obligatory for an assessee to make available records maintained by him to a Central Excise Officer for the purpose of inspection or examination. However, such inspection or examination can be undertaken only after the written approval of the jurisdictional Assistant/Deputy Commissioner. It may also be noted that the assessee is required to make available the records in his registered premises.
As per CENVAT Credit Rules, 2004
Rule 9 deals with documents and accounts and prescribes the documents for permitting CENVAT credit, actions to be taken by manufacturer and service provider, records to be maintained and returns to be submitted. Accordingly, documentary evidence shall be the basis for availing CENVAT credit. The manufacturer or output service provider or input service distributor or a person liable to pay service tax shall avail CENVAT credit or the basis of invoice issued by a manufacturer/importer/first stage dealer, supplementary invoice, challan, bill of entry, certificate issued by appraiser of customs, invoice/bill/challan issued by input service provider or input service distributor or a challan evidencing payment of service tax, by the service recipient as the person liable to pay service tax.
Freedom has been given to the assessee to maintain their own set of records however to show the required particulars for taxation purposes.
It should be remembered that -
Invoices should be made clearly indicating goods or service portion separately
The permissible deductions can be availed on the Invoice value before paying service tax
Where goods and service portion cannot be separated, abatement facility, if any should be made use of
It is better to make invoices for exempted and taxable services separately with separate serial numbers.