Service tax liable to be paid even if not collected from the client :

Section 68 casts the liability to pay service tax upon the service provider or upon the person liable to pay service tax as per Rule 2(1)(d). This liability is not contingent upon the service provider realizing or charging the service tax at the prevailing rate. The statutory liability does not get extinguished if the service provider fails to realize or charge the service tax from the service receiver.

However, sometimes it may happen that the assessee is not able to charge service tax because of the nature of service or he fails to recover the service tax from the client/customer as he is not aware that his services are taxable. Hence, in these cases the amount recovered from the client in lieu of having rendered the service will be taken to be inclusive of service tax and accordingly tax payable will be calculated by making back calculations.

For example, if bill amount is Rs 5,000 and service tax is not shown separately in invoice, then service tax payable shall be computed as follows:

5000/114 x 14 = Rs 614

It may be noted that service tax payable is not Rs 700 computed by applying 14% to Rs 5000. The value of the taxable service in this case is Rs 4,386.

The example given above can be solved by using the following formulae:

Value of taxable service = [Gross amount charged/(100 + rate of tax)] x 100

Service tax = [Gross amount charged/(100 + rate of tax)] x rate of tax