2011 (7) TMI 946 - AT - Service Tax

Demand - Adjustment of excess duty - Rule 6(3) of Service Tax Rules 1994 - Even though amended rules were not in force at the material time and therefore are not applicable to the case at hand considering the spirit of the amended rules and the fact that the appellant is a public sector unit and the entire amount of tax has been paid by adjustment - Appeal is allowed

Summary

Issues:
1. Adjustment of excess payment for one period against tax liability for a future period under Rule 6(3) of Service Tax Rules, 1994.
2. Interpretation of conditions for adjustment of excess service tax payment.
3. Applicability of amended rules (Rule 6(4A) and 6(4B) of the Service Tax Rules, 1994) for adjustment of excess payment against future tax liability.
4. Consideration of leniency due to the nature of the appellant being a public sector unit.

Analysis:

1. The appellant, a public sector unit, adjusted excess payment made for one period against tax liability for a future period, leading to demand confirmation and penalty imposition. The appellant contended that such adjustment is permissible under Rule 6(3) of the Service Tax Rules, 1994. The respondent opposed this, citing the case of BBC World (I) Pvt. Ltd. v. CST, New Delhi, which outlined the conditions for adjustment under Rule 6(3). The Tribunal noted that Rule 6(3) allows adjustment if the excess payment is related to services not provided and the amount, along with tax, has been refunded. As the appellant failed to explain the reason for the excess payment and whether the amount was refunded, the Commissioner's decision to reject the adjustment plea was upheld.

2. Subsequently, the Service Tax Rules were amended to include Rule 6(4A) and 6(4B) allowing adjustment of excess payment against future tax liability. Although these rules were not in force during the relevant period, the Tribunal, considering the spirit of the amended rules and the appellant being a public sector unit, took a lenient view. The impugned order was set aside, cautioning the appellant to strictly adhere to legal provisions in the future under penalty of serious consequences. The appeal was allowed, emphasizing the importance of compliance with legal requirements.

3. In conclusion, the judgment clarifies the conditions for adjusting excess service tax payments under Rule 6(3) of the Service Tax Rules, 1994, and highlights the importance of following legal provisions. The Tribunal's decision to consider leniency due to the nature of the appellant being a public sector unit underscores the need for strict compliance to avoid future issues. The case serves as a reminder for entities to adhere to tax regulations and procedures to prevent penalties and ensure legal compliance in financial matters.