service tax liability

kamal sachdeva (Querist) 28 June 2010 This query is : Resolved
My query relates to when service tax liablity arisess. At the time of issuing the bill/ invoice to the party or at the time when payment is received? Earlier we deposit the tax when we receive the payment only but now some people say it shud be on accrual basis not on receipt basis. What is the exact legal standing on this issue.

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Sumit Batra (Expert) 28 June 2010
It is based on receipt basis. In case u raise an invoice and send it to the customer and customer doesnt pay u any amount, then where is your liability to pay service tax? therefore, u r liable to pay only after receipt.

Vineet (Expert) 30 June 2010
The Service tax liability arises at the time of receipt of bill consideration only.

The exception is with regards to transaction between related companies wherein the liability arises on accrual basis to check postponement of service tax payment.