S/s. 43B & 145A – Service tax on unrealised service charges cannot be added back to the income

S/s. 43B & 145A – Service tax on unrealised service charges cannot be added back to the income

The assessee was engaged in the business of rendering consultation in pharmaceuticals, chemicals and drugs. In the P & L A/c, the assessee has shown fees for rendering consultancy services net of service tax. The service charges of Rs. 32 lakh was not realised and outstanding at the year end. The Assessing Officer was of the view that the service tax should have been shown as receipts in the P & L A/c on the principle laid down by the Honourable Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT [87 ITR 542] and also as per the provisions of section 145A. The Assessing Officer made an addition of Rs. 3,91,680/- on account of service tax on the ground that the assessee ought to have made payment of the service-tax in order to claim deduction as per provisions of section 43B.

Held:

As per the service tax law, service tax is payable as and when the payments/fees for underlying service provided are realised. As the assessee has not received the sum till the end of the financial year, question of paying the same did not arise at all. If for any reason the payment for services rendered is not realised, there was no liability as to payment of service tax. Thus, the service tax law stands on a different footing as compared to other laws like Central excise or VAT.

The application of section 145A is restricted to purchase and sale of goods only, and does not extend to service contracts. Therefore, the action of the Assessing Officer in invoking provisions of section 145A and adding service-tax to gross receipts is incorrect in as much as against the very basic principles of section 145A.

The rigours of section 43B might be applicable to the case of sales-tax or excise duty, but the same could not be said to be the position in case of service tax because of two reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Government and is paid to the Government account. Therefore, a service provider is merely acting as an agent of the Government. Secondly, section 43B(a) uses the expression “any sum payable”. If there is no liability to make the payment to the credit of the Central Government because of nonreceipt of payments from the receiver of the services, then it cannot be said that such service tax has become payable in terms of section 43B(a).