2012 (5) TMI 244 - AT - Service Tax

Adjustment of excess amount of service tax paid - Scope of the term subsequent period - Decision in the matter of Narnolia Securities Pvt. Ltd. Vs. Commissioner of Service Tax, Ranchi ( 2008 (3) TMI 70 - CESTAT KOLKATA). - Rule 6(3) of the Service Tax Rules, 1994. - held that - The said Rule had no stipulation that the adjustment should be made in the succeeding month or quarter. The expression used there under states that the adjustment can be made for service tax liability for the subsequent period. No doubt, the said sub-rule (3) had conditions regarding refund of value of taxable service not provided etc. but these conditions would apply to a service provider. The appellants in this case were not the service providers but were service recipients. - while the main clause of Rule 6(3) permits the appellants to make adjustment of excess payments made earlier in the subsequent period, the conditions peculiar to the service providers cannot be made applicable in their case. - there is no scope for issuing a second show cause notice dated 18.12.07 by the department. - Decided in favor of assessee.

Issues:
1. Whether the Tribunal can allow an appeal at the instance of the assessee based solely on the ground of excess payment without delving into the factual aspect?
2. Whether the adjustment made by the appellants towards excess payment was appropriate under Rule 6(3) of the Service Tax Rules, 1994?
3. Whether the subsequent show cause notice issued by the department was justified after a previous order allowed the adjustment?
4. Whether the Rule 6(3) provisions applied to the appellants' case despite the subsequent amendments to sub-rules 4(A) and 4(B) from 01.03.07?

Analysis:

1. The Hon'ble High Court addressed the first issue by ruling that the Tribunal cannot set aside an order solely based on taking a lenient view without supportive findings. The Court emphasized that leniency should be case-specific and not a uniform rule. The matter was remitted to the Tribunal for fresh consideration, leaving all contentions open for both parties to present.

2. The case involved M/s. Tamilnadu Newsprint and Papers Ltd., a State Government undertaking, which made excess service tax payments on the last day of financial years in 2005 and 2006. The jurisdictional Assistant Commissioner allowed adjustments under Rule 6(3) of the Service Tax Rules, 1994, stating that the excess payments were precautionary measures to avoid short payments. The department initially dropped the case after adjudication but later issued a show cause notice objecting to the adjustments. The appellants argued that the adjustments were permissible under Rule 6(3) and cited precedents supporting their position.

3. The appellants contended that the subsequent show cause notice issued by the department was unwarranted as the initial order allowing adjustments had attained finality. They argued that the department's failure to appeal the first order precluded them from challenging the subsequent adjustments made by the appellants. The Tribunal found that the department's actions were not justified, and the subsequent notice and orders were unsustainable.

4. The final issue revolved around the applicability of Rule 6(3) to the appellants' case despite subsequent amendments to sub-rules 4(A) and 4(B) from 01.03.07. The Tribunal held that the appellants, as service recipients, were entitled to make adjustments against excess payments as per Rule 6(3) without being bound by the subsequent amendments. It emphasized that the conditions specific to service providers did not apply to the appellants, and the adjustments made by them were legitimate. The Tribunal set aside the impugned order and allowed the appeal in favor of the appellants.

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