Introduction
Presently maximum services have been covered under service tax law and now it seems that in future, if finance minister proposes new services under Finance Bill, either it would be already under service tax net or it would be specific head for already covered services to resolve the disputes of taxability. Assessee as well as practioners are also trying their best to comply with the provisions .The size of Act is too small that no separate Act has been notified till date. However , it becoming toughest law not by size but due to notifications, circulars or trade notices issued by the Government on very frequent basis. After introducing Finance Bill, 2011 i.e. 28-2-2011, government has issued 37 notifications, 6 circulars and 2 corrigendum till 30-4-2011. Hence no practioner can be confident that he has up to date knowledge of particular service because there might be new notification while giving advice to his client.
Now in general, assessee is regular in paying service tax and filing of return and he is quiet confident that there is no issue in service tax with department as whatever he is collecting as service tax, depositing the same to government account. Further there is no provision of scrutiny of return under service tax which makes him more confident that he is properly complying the law. However, still there are some area where assessee can be said to be in default which requires clarifications and amendments .One of the area is sub-rule (4A) and (4B)of rule 6 of the service tax rules.
Whenever assessee pays excess service tax against due liability, he has two option i.e. either he can adjust the amount as per sub-rule 4(A) and sub-rule 4(B) of rule 6 of the service tax rules or he may file refund claim as per section 11B of the Central Excise Act, 1944 .In this article, I am discussing the provisions related to adjustment of excess service paid from subsequent liabilities which is making assessee in default only for some genuine adjustment.
Statutory provisions
Sub-rules (4A) and (4B) of rule 6 of the Service Tax Rules, 1994 are applicable rules for adjustment of excess paid service tax.
"(4A) Notwithstanding anything contained in sub-rule (4), where an assessee 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, the assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter, as the case may be.
(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 of Rupees 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."
From perusal of above rules, it looks that for small adjustment there are number of conditions which are generally ignored by the assessee and which makes him in default.
Issues
There are number of circumstances where assessee genuinely pays certain amount of service tax in excess to avoid any mistake. Like In March due date is 31st March where it is very difficult to ascertain exact liability for that quarter or month hence either he pays in excess or pays less amount by showing it amount outstanding for march in return form.
Is it fair to make assessee in default who is paying excess amount and adjusting the same in succeeding quarter for non compliance of certain conditions? Whereas the assessee who is paying lesser amount against due liability in the month of March is being not treated in default except liability of interest.
Following are the major issues which concerns the assessee
1. Government has specified time limit for adjustment of excess paid i.e. only in succeeding quarter/Month. This restriction creates loss of genuine claim of the assessee.
2. No specific format has been specified by the Government for intimating excess payment to concerning Superintendent .Either it should be incorporated in return form or specific format must be provided .Further service tax assesses are now trying to file their return through e-filing whereas such type of intimation is to be filed physically and it is now well known fact that submitting document is tedious job in service tax department.
6. Sub-rule 3 of the rule 6 of Service Tax Rules,1994 has no such conditions for adjustment like in rule (4B) even the word subsequent has also been omitted w.e.f. 1-3-2011 'Why such difference has been made is again a big questions. Establishing that he has refunded the service tax on the services which he has not provided is more difficult in compare to establish that excess has been paid only by way calculation, still the adjustment in rule (4A) is tedious in compare to Rule 3. Sub-rule (1A) of rule 6 of Service Tax Rules, 1994 deals with adjustment of advance tax paid by the assessee .In this rule also; there is no time limit for adjustment.
7. Certain time it may happen where assessee enjoying exemption benefit due to threshold limit of10,00,000 ,at the year end when he crosses limit of9,00,000 then he would have to registered under Service Tax and if he pays certain amount before 31st March by estimating his gross receipt above10,00,000 but does not crosses the limit and next year where he opts to pay service tax from beginning he may not be able to adjust the amount paid in previous quarter as department will not allow by saying the excess payment is due to applicability of exemption notification.
Judicial View
Till date there is no specific decided case governing the sub-rule (4A) and sub-rule (4B) of rule 6 of the service tax rules. However in number of cases it has been held that when entire liability has been paid by the assessee then rules should be liberally interpreted.
In case of Narnolia Secutrities (P) Ltd. v. CST [2008] 15 STT 284, the CESTAT Bench of Kolkata held that where substantial part of rule complied with by the assessee under rule 6(3) then lenient consideration is called for to allow adjustment. As the ruling is for interpretation, same is similarly applicable for sub-rule (4A) and (4B).
Similar view was held by CESTAT Bench of Bangalore in case of CCE v. Power Battery India Ltd. [2010] 26 STT 365. In this case it was held that when there was no dispute that assessee had paid excess service tax which it sought to adjustment then adjustment is allowable even some of conditions have not been satisfied.
CESTAT Bench of New Delhi has reverse view in this regard. In case of BBC World (India) (P.)(Ltd.) v. CST [2009] 20 STT 54, it was held by Bench that without satisfying prescribed conditions in rule 6(3) no adjustment is allowed. However in this case assessee could not explained as to how excess payment during relevant period had taken place. Hence facts are different for ruling.Though all ruling discussed above are CESTAT ruling still same have weightage as there is no high court ruling till date.
Conclusion
As discussed, where the assessee has paid the excess payment only on account of calculation or lump sum to avoid interest ,Either Government should amend the rules by lifting the conditions and restrictions which looks unreasonable or return form should be amended to include refund claim so that every assessee paying excess amount be mentally prepared that there is no such adjustment allowed like in Income-tax and only option available to him is to claim refund in return form to avoid undue hardship faced by assessee.
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