Whether adjustment of excess service tax paid against future liability possible suo moto, if interpretation involved?

PJ/CASE LAW/2015-16/2772

Case:-ASCENT MARKETING AND SERVICES VsCOMMISSIONER OF C. EX., BHOPAL

Citation:-2014 (33) S.T.R. 108 (Tri. - Del.)

Brief Facts:-The Appellants are rendering cleaning services specified under Section 65(24b) of Finance Act, 1994 and they have been paying Service Tax. During the period 15-6-2005 to Jan. 2009 they rendered such services to Bhopal Memorial Hospital and Research Centre and received charges of Rs. 1,69,43,267/-. The noticee did not pay any Service Tax on the said amount. For the period June, 2005 to March, 2006 they paid Service Tax amounting to Rs. 4,04,542/- on the value of cleaning service provided by them to M/s. BMHRC. By October, 2006 they realised that they need not have paid such Service Tax because the said hospital is not a commercial establishment and therefore the service rendered to such establishments was not covered by entry at Section 65(24b). Therefore they adjusted the excess Service Tax paid during the said period against their total liability for Service Tax for the period April, 2006 to December, 2006. The Revenue was of the view that an assessee cannot take such suo moto refund of Service Tax paid by adjustments against future liability and therefore a Show Cause Notice proposing recovery of such amount adjusted stands confirmed against the appellants by the impugned order. However, penalty imposed in the order-in-original has been set aside by the Commissioner (Appeals). Aggrieved by the order, the Appellants have filed this appeal.

Appellant contentions:- The Appellants submits that the Commissioner (Appeals) did not properly consider the provisions of sub-rule 6(4A) of Service Tax Rules, 1994 as amended after 1-3-2007, while denying such adjustment. The Appellants contend that they can take such suo motu credit as per sub-rule 6(4A) of Service Tax Rules, 1994.
The Appellants also bring to the notice of the Tribunal that the Commissioner (Appeals) has held that the cleaning service rendered by the Appellant to BMHRC was not taxable. Therefore, it is their contention that demand is confirmed after giving a finding in their favour and therefore they should not be asked to pay this amount.

Respondent contentions:-Ld. Authorised Representative for Revenue submits that taxability of the service in question is not for consideration before Tribunal. The only issue to be decided is whether an assessee can take suo moto credit of any Service Tax paid in a previous period by adjusting the same against future liability. The authorised representative submits that the correct procedure applicable in such a situation is to file a refund application and as per law such refund can be sanctioned after considering whether the refund application is filed in time and whether there is any unjust enrichment occurring while granting such refund. In a situation where assessee himself takes credit on excess payment of Service Tax both this checks cannot be enforced. In fact there is no provision under Service Tax Rules to allow refund of Service Tax through such mechanism. To understand the correct scope of Rule 6(4A) of Service Tax Rules, 1994, sub-rules (4) and (4A) of Rule 6 of Service Tax Rules, 1994, as it stood at the relevant time, have to be seen together. These sub-rules are reproduced below :-
(4) Where an assessee is, for any reason, unable to correctly estimate, on the date of deposit, the actual amount payable for any particular month or quarter, as the case may be, he may make a request in writing to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, giving reasons for payment of service tax on provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, on receipt of such request, may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him and the provisions of the Central Excise (No. 2) Rules, 2001, relating to provisional assessment, except so far as they relate to execution of bond, shall, so far as may be, apply to such assessment.
(4A) Notwithstanding anything contained in sub-rule (4), where an assessee has opted for registration under sub-rule (2) of Rule 4 of these rules and has paid to the credit of Central Government any amount in excess of the amount required to be paid towards Service Tax liability for a month or quarter, as the case may be, for the reason of not receiving details of payments received towards the value of taxable services at his other premises or offices, the assessee may adjust such excess amount so paid as Service Tax by him against his Service Tax liability for the subsequent period and the details of such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such adjustment.”
It is very clear that provisions of sub-rule (4A) was available only to an assessee has taken registration under sub-rule (2) of Rule 4, that is where an assessee was providing service from more than one premises and such assessee had taken a combined registration for all such premises which was not the case of the present appellants.
This rule was changed from 1-3-2007. At that time also sub-rule (4B) made certain special provisions. For the sake of academic interest this provision is reproduced below :
“(4B) The adjustment of excess amount paid, under sub-rule (4A), shall be subject to the following conditions, namely :-
(i) excess amount paid is on account of reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification,
(ii) excess amount paid by an assessee registered under sub-rule (2) of rule 4, on account of delayed receipt of details of payments towards taxable services may be adjusted without monetary limit,
(iii) in cases other than specified in clause (ii) above, the excess amount paid may be adjusted with a monetary limit [two lakh rupees] for a relevant month or quarter, as the case may be,
(iv) the details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such adjustment.”
Rule 4B as in force after 1-3-2007 clearly states that excess payment made on account of reasons involving interpretation of law, taxability, classification, value or applicability of any exemption notification shall not be allowed to be refunded by way of credit taken by the assessee on his own.

Reasoning of Judgment:-In the present case the claim for refund has arisen on account of interpretation of law and therefore such refund cannot be claimed refund under Rule 6(4A) as it existed at the relevant time or even later. Moreover, Rule 4B as in force after 1-3-2007 clearly states that excess payment made on account of reasons involving interpretation of law, taxability, classification, value or applicability of any exemption notification shall not be allowed to be refunded by way of credit taken by the assessee on his own.
So we do not find any prima facie case in favour of the appellants. We direct them to make deposit of 50% of the tax amount demanded as a pre-condition of hearing the Appeal within six weeks. Subject to such pre-deposit balance of dues arising from the impugned order shall be waived and there shall be stay on collection of such amounts during the pendency of the Appeal. Compliance to be reported on 28-2-2012.

Decision:-Stay partly granted.

Comment:-The crux of the case is that as per Rule 4B, assessee is not permitted to adjust excess service tax paid by him towards his future service tax liability if the reasons for excess payment are interpretation of law, taxability, classification, value or applicability of any exemption notification. In such a case, proper course of action by the assessee is claiming refund of excess service tax paid by him.

Prepared By:- Meet Jain

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PJ/CASE LAW/2015-16/2772

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