2015 (11) TMI 1187 - AT - Service Tax

Relevant date for payment of service tax where services are provided to Associate Enterprises - accrual basis or receipt basis - Scope of ection 67(4) - Business Auxiliary Service - Receipt of commission - Held that - the explanation regarding transaction of taxable service with an associate enterprises only refers to value of taxable service which shall include any amount credited or debited in the Books of Account. But the date on which payment of Service Tax is due to be made is the 5th/6th of the month following the calendar month in which payments are received towards the value of taxable services in terms of Rule 6(1) as it stood during the relevant period (before 01.04.2011). There is no confusion on this. Appellant have clearly shown the dates on which the payments are received through the banking channels. There is no book adjustment outside the scope of the invoices raised to the Associate Enterprises. The lower authorities have completely mis-interpreted the provisions of the Rules and the Act. The amount has not been credited to the appellant s account. Simple recording of invoice amount as receivable in the Books of Account does not mean that there is a book adjustment in every case. If Revenue s view is taken as correct, the provision of law which states that Service Tax payment is linked to the receipt of payment of service, would render Rule 6(1) meaningless. The view of lower authorities does not stand to reason and must be rejected. I hold that the demand of interest does not sustain. - Decided in favour of assessee.

Summary

Issues:
- Interpretation of relevant date for payment of Service Tax when service is provided to an associate enterprise.
- Applicability of Section 67(4) of the Finance Act and Rule 6(1) of the Service Tax Rules.
- Misinterpretation of provisions by lower authorities leading to demand of interest.

Analysis:

Issue 1: Interpretation of relevant date for payment of Service Tax
The appellant appealed against the Commissioner (Appeals) order confirming a demand of interest on Service Tax. The dispute revolved around the date for payment of Service Tax when services were provided to an associate enterprise. The Revenue argued that the date of payment should be when the amount is entered in the Books of Account, not when received, based on the amendment to Section 67(4) of the Finance Act and Rule 6(1) of the Service Tax Rules.

Issue 2: Applicability of Section 67(4) and Rule 6(1)
The appellant contended that the lower authorities misinterpreted the provisions. Section 67(4) clarified that any amount charged to the service receiver and adjusted in the Books of Account should be included in the gross amount charged for services. Rule 6(1) mandated payment of Service Tax by the 5th/6th of the following month when payments are received. The explanation regarding transactions with associate enterprises only referred to the value of taxable service, not the date of payment.

Issue 3: Misinterpretation by lower authorities
After careful consideration, the Tribunal found that the lower authorities misread the provisions. The appellant demonstrated that payments were received through banking channels without book adjustments. The mere recording of invoice amounts in the Books of Account did not constitute a book adjustment. The Tribunal held that the demand for interest was unjustified as the lower authorities' interpretation was flawed. Following this analysis, the impugned order was set aside, and the appeal was allowed.

In conclusion, the Tribunal's decision clarified the correct interpretation of the relevant date for Service Tax payment, emphasizing the importance of adhering to statutory provisions and avoiding misinterpretations by lower authorities.