Books of Accounts: Service Tax


Books of Accounts

Requirements as to Service Tax

1. What, Which, How should I keep my books of Accounts?

Ans. No specific provision exists in the finance act as to what books, documents, records should be maintained, where they should be maintained, how they should be maintained. However reliance is placed on other governing laws as regarding the books, documents, records to be maintained by a person. Rule 5(1) of the Service Tax Rules, 1994 provides that the records including computerized data as maintained by an assessee in accordance with the various laws in force from time to time shall be acceptable. In simple terms, the records maintenance is left to the discretion of the assessee.


2. Where should I keep my books of accounts?

Ans. Here also no specific provision is prescribing where you should keep your books of accounts. But based on the other requirements imposed like requirements at the time of registration, All the premises registered under the Services Tax Rules, 1994 for rendering services should maintain proper accounts. Rule 5A of the Service Tax Rules, 1994 governing the access rights of the service tax authorities also mandates the assessee to maintain the books, accounts, records at all the registered premises of the assessee.


3. Do I have to declare my books of accounts to service tax authorities?


Ans. Yes. Rule 5(2) of the Service Tax Rules, 1994 requires every assessee at the time of filing his first half yearly return should declare the following along with his return of service tax all records prepared or maintained by the eassessee for accounting of transactions in regard to, providing of any service, whether taxable or exempted; receipt or procurement of input services and payment for such input services; receipt, purchase, manufacture, storage, sale or delivery, as the case may be, in regard of iputs and capital goods; other activities, such as manufacture and sale of goods, if any.


4. Who is responsible for maintenance of Books of Accounts?


Ans. Here also no specific provision in this regard exists. But it can be safely presumed that the person liable to pay service tax is responsible for maintenance of Books of accounts.


5. What constitutes Proper Books of Accounts?


Ans. There are 5 primary requirements of a proper books of accounts as to the requirements of service tax.

1. Since Service Tax is basically a levy on Gross Receipts of an entity. A detailed record of all Gross Receipts of the entity should be properly kept. That includes

  1. List of Invoices Raised,
  2. Cash Book
  3. Bank Book and copies of Bank statements issued by your banker with proper reconciliation therof
  4. Sales / Service Register (Including Sales Returns register or Service cancellation register)

2. If the entity is claiming input credit, then it should maintain proper records for claiming the credit. Usually that includes

  1. Invoices/ Bills based on which input credit is claimed.
  2. Register showing accumulation of input credit
  3. Register showing utilization / carry forward / expiry of input credit.
  4. Details of payments made for input services

3. If more than one service is rendered by the assesse, a proper classification system should exist. In the accounts, if a separate account is kept for each service rendered it will suffice for the purposes of service tax. This assumes more significance if some services are exempt and some services are not.
4. In addition Rule 5A of the Service Tax Rules, 1994 requires for production of the following documents to any officer or audit party if demanded.

  1. Trial Balance or its equivalent.
  2. Tax audit report u/s 44AB of the Income tax Act.

5. Though not specifically mentioned, it is advisable to keep a copy of the following. Most of these are required to maintained compulsorily under other laws anyway.

  1. Balance Sheet, Profit and Loss account with relevant schedules.
  2. Audit reports under other laws like Companies Act, CARO, etc.
  3. Directors Report and similar documents of Annual Report
  4. Proof of payment of taxes.
  5. Copies of exemption notifications on which reliance is placed is also suggested though not specifically required.

6. What is the medium in which I can maintain my Books of Accounts?

Ans. Can be maintained in any way, as long as it complies with other laws. Documents can be maintained electronic format also. But some documents like those for claiming input credit should be maintained in paper format in originals.


7. How long should I maintain my Books of Accounts?


Ans. Rule 5(3) of the Service Tax Rules, 1994 requires you to maintain the books of accounts for atleast 5 years after the financial year for which the records pertain.


8. Who can inspect the Books of Accounts and What can they inspect?


Ans. An Officer authorized by the Commission can have access to the following records

  1. Record mentioned in point no. 3 above.
  2. Trial Balance or its equivalent
  3. the income tax audit report u/s 44AB of that act, if applicable.

9. Penalty for Default

Ans. Section 79 provides for imposing a penalty for failure to comply with notice issued u/s 71. i.e., for failure to produce any accounts, books or other documents, etc., as may be asked for the purpose of verification of the service tax return filed by the assessee. A penalty not exceeding 50% of the service tax but a minimum of 10% of service tax can be levied, unless a reasonable cause exists for non-production of accounts.

See Also: (link will be provided shortly)

Model Sales / Service Register.
Model Input Claim Register.