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Liability to pay service tax is on service provider as per Section 68
It is not dependent upon service provider charging Service tax from client or not
In this case, if service provider fails to charge service tax or charges service tax but fails to recover the same,
Then amount received from client will be deemed to be including service tax and service tax will be reverse calculated
Exam Questions
Question 7
A tour operator booked a package tour for a client. He billed the client for his services, but did
not charge any service tax though he is liable to pay service tax under the relevant provisions.
It is the contention of the operator that since he has not collected any service tax from the
client, he will not deposit the same with the Government. On the basis of said information,
answer the following questions:
(i) Do you think the contention of the tour operator is correct in law? Explain.
(ii) In case the tour operator is liable to pay service tax, how will the service tax liability be
determined?
(i) Section 68 of Finance Act, 1994 casts the liability to pay service tax upon the service
provider. This liability is not contingent upon the service provider realizing or charging
service tax at the prevailing rate. Statutory liability does not get extinguished if service
provider fails to realize or charge service tax from service receiver.
Therefore, action taken by tour operator is not correct in law. He will have to deposit
service tax even if he has not collected the same from his client.
(ii) The amount received by the tour operator from the service receiver will be taken to be
inclusive of service tax. Accordingly, service tax payable by the tour operator shall be
ascertained by making back calculations in the following manner : -
Service tax payable = Amount billed * Service tax rate/(100+service tax rate)
