A recent circular by the revenue department has caused ripples in the industry. The circular, which is effective from July 1, makes it mandatory for the service industry to raise the invoice within 14 days of completion of the service and pay service tax soon after. With a majority of business done on the credit system, service providers feel they would have to shell out service tax from their own pockets because payment is received at least a month or three months later.
If the invoice is not raised within 14 days of completion of service, on the 15th day it would be considered to be completed. The service provider is required to pay tax by 5th of the subsequent month when the invoice is raised. Industry experts said the circular would cause a loss to those who fail to receive payments from their clients.
In such cases, the government is asking for service tax where payments are not made, said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.
For bad debts, there is no provision for refund, said advocate Shailesh Seth, an expert in service tax matters.
There are 121 types of services that are under the ambit of service tax, including real estate consultants, stockbrokers and customs house agents.
Chartered accountant Naresh Dharia said one has to pay service tax on the invoice amount. Often, there are adjustments with the clients, so the service provider ends up paying extra tax, said Dharia.
Deena Mehta, a leading stockbroker, said stockbrokers have always followed the practice of paying service tax immediately after raising invoice, irrespective of payments from the clients.
Customs house agents have lodged a protest to the department against the new circular