PAYMENT OF SERVICE TAX BY MARCH 31: PRACTICAL DIFFICULTIES

PAYMENT OF SERVICE TAX BY MARCH 31: PRACTICAL DIFFICULTIES

The Central Board of Excise and Customs has issued Notification No. 01/2002-ST, dt.14.01.2005. It has amended the Rule 6 of Service Tax Rules, 1994. The Rule 6(1) after amendment reads as follows: -

“(1) The service tax on the value of taxable service received during any calendar month shall be paid to the credit of the Central Government by the 25^th of the month immediately following the calendar month :

Provided that where the assessee is an individual or proprietary concern or partnership firm, the service tax on the value of taxable service received during any quarter shall be paid to the credit of the Central Government by the 25^th of the month immediately following the said quarter:

Provided further that the Service Tax on the value of taxable services received during the month of March or the quarter ending March, shall be paid to the credit of the Central Government by the 31^st day of March of the calendar year.”

In this article, we are trying to analyze the practical difficulties arising out of implementation of this new amended Rule which are as follows: -

1. Meaning of amendment : - As it is ample clear from the reading of new amended rule that the service tax for the month or quarter ending on March 31 has to be paid by March 31 itself. Earlier the assessee, other than individual, proprietary concern and partnership firms, were paying the service tax for a month by 25^th of the following month. But they have to pay the tax for the month by March 31 themselves. For the rest of the months they will pay the tax as they were paying earlier. Similarly, the individual, proprietor and partnership firms who were paying tax for the quarter by 25^th of the immediately following month, has to pay the tax for the month of March by March 31 itself.

2. Objective of Amendment: - The Government has not declared the real objective behind the amendment. But it seems that the objective of Government is to collect the service tax for the financial year within the same financial year. It will enable the Government to show that they have achieved its targets. The Government will show its realization against the projected budget estimates. But it will create a lot of problems which are discussed in enumerated paras.

3. Calculation of Tax: - The assessee has to calculate the complete amount received by him by March 31 on that day itself. He has to calculate the tax on the very same day. Thereafter, calculate the CENVAT credit and deduct the same from the tax amount. After this calculation, deposit the remaining amount of this day only. It will really be very cumbersome. The problem is aggravated by the large number of small assesses registered under the Service Tax. It is not expected from small photographers, dry cleaners, video-graphers etc. to calculate the amount and deposit the tax on the same day. If they fail to do so then they will face the harsh penal provisions of Rs. 100/- to Rs. 200/- per day under section 76 of the Act along with interest @13 % under section 75. This will invite to undue litigation.

4. Estimated Tax amount: - The assessee who can not exactly calculate the tax amount will try to pay it on estimated basis. The shortfall in the tax amount will call for the interest and show cause notice for penal action. But the excess deposit of tax amount will lead to filling of refund application as there is no provision like maintenance of PLA register (as maintained by the Central Excise assessee) for the service tax assessee. Thus, they can not carry forward the excess amount. They have to pay the exact amount. There is also no provision for the adjustment also. The only provision of adjustment is available in Rule 6(3) which reads as follows: -

“Where an assessee has paid to the credit of Central Government service tax in respect of taxable service and the service tax in respect of taxable service, which is not so provided by him, either wholly or partially for any reason, the assessee may adjust the excess service tax so paid by him (calculate on pro rata basis) against the service tax liability for the subsequent period, if the assessee has refund the value of taxable service and the service tax thereon to the person from whom it was received.”

But the same situation is not available here and only solution is making an application for refund. The problem does not end here. If you are not able to estimate your tax liability exactly by due date then the department may ask for provisional assessment under Rule 6(4)of ibid. But it is very difficult procedure for small assessee of service tax. And too for the month of March only.

5. Bank Holiday: - There is normally no transaction in the banks on year end. They are busy in closing their accounts. This will add fuel to fire. The assessee can deposit the tax on the next working day following the clause 6 of General Clause Act. But it will be against the basic objective of the Government to realize the amount in same financial year. The Board has to make extra arrangements for the same. They have to ask the bank to accept the Government dues on year end.

Further, if the cheque is deposited on March 31 and realized later on then it will termed as payment of tax in time by virtue of Rule 6(2A) of aforesaid Rules. But when there is no transaction day in bank on march 31 then the cheque deposited on next working day will not be termed as payment by due date by the department. There is again scope for litigation.

6. Publicity: - This provision has changed the regular practice of paying tax by 25^th of next month or quarter as the case may be. Seeing the large number of assessee registered with the department, this provision requires a very vide publicity. This can be done by newspaper, TV channels etc. But this will again incur a huge cost. The question again comes to mind that whether such a huge cost is feasible for just presentation of figures showing achievements of targets? The amount would have reached to the Exchequer on 25^th of April. Should the hard earned money of the tax payers be wasted in this manner.

From foregoing, it is clear that the implementation of this provision will be very difficult. There is ample scope for litigation or refund claims, which will waste precious time and money of both department and assessee. Thus, this new provision of payment of tax by March 31 should be deleted from statue book.

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PAYMENT OF SERVICE TAX BY MARCH 31: PRACTICAL DIFFICULTIES

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