The chargeability section of Service Tax provides that service tax is charged on the value of taxable service provided and it is to be paid when the gross amount of service provided or to be provided is received. In other words, it is payable on receipt basis, that is, on receipt of payment of the invoice or bill from the customer or receipt of advance, whichever is earlier.  But as per the recent amendment in the Finance Act, service tax will be payable on the following basis:

• “Date of billing or receipt of payment”, whichever is earlier, if the invoice is issued within 14 days from the date of completion of service.
  

•  If the invoice is not issued within 14 days, then the tax is to be paid on “Date of completion of the service or receipt of payment”, whichever is earlier.
  

The provisions will be clearer through the following illustrations:

For example, say, Date of completion of service: 10^th April, 2011

     Date of invoice: 20^th April, 2011

                             Date on which payment recd: 30^th April, 2011

Tax is to be paid on April 20, 2011, as the invoice is received within 14 days from the date of completion of service.

In another case: Date of completion of service: 10^th April, 2011

   Date of invoice: 26^th April, 2011

                           Date on which payment recd: 30^th April, 2011

Tax is to be paid on April 10, 2011, as the invoice is received after 14 days from the date of completion of service, so date of completion of the service or receipt of payment”, whichever is earlier, will be considered.

So it is well understood that now service tax will have to be paid irrespective of the fact whether the payment of service is received or not.

It is very important to note that the above amendment is not applicable on professionals and they are entitled to pay tax on receipt basis. The professionals that are excluded from the provisions of paying tax on billing basis are Chartered Accountants (individuals, proprietary firms or partnership firms), architect, interior decorators, cost accountants, company secretary, legal service and scientific and technical consultancy.

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