2016 (8) TMI 796 - AT - Service Tax

Self adjustment of service tax liability with excess tax paid earlier manpower recruitment and supply agency service - Held that - the adjustment of excess service tax paid by the appellant to the Central Government for the service not provided by him wholly or partially for any reason against his service tax liability for the subsequent period is permissible and this can be done only when the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received. This is not a case where the amount sought to be adjusted falls under the category of excess payment on account of wrong classification, valuation or claiming of an exemption. This is a plain and simple case of payment of tax where no tax is required to be paid as no service was provided on which fact, there is no dispute. Raising only debit notes and not any invoices or bills since the transactions were only with sister concerns Held that - the finding in the impugned order that the appellant had not produced any material to substantiate that they had refunded the taxable value including the service tax to their group concerns/clients to which the services had been rendered is not even an allegation in the SCN and therefore not addressed appeal allowed decided in favor of appellant.

Issues: Adjustment of excess service tax payment, applicability of Rule 6(3) of Service Tax Rules, 1994, demand of service tax and interest, imposition of penalty under Section 76 of the Finance Act, 1994.

Adjustment of Excess Service Tax Payment:
The case involved M/s. Chola Business Services Ltd., providing payroll services to their group companies by deputing employees to sister concerns across India. An audit revealed the company only raised debit notes, not invoices, for transactions with sister concerns. The issue arose when the company adjusted an excess service tax payment of ?14,58,480 without indicating the period of overpayment. The department contended that the adjustment was improper under Rule 6(3) of Service Tax Rules, 1994, as the company did not refund the taxable value to the recipients. The Joint Commissioner confirmed the demand, but dropped the penalty under Section 76. The Commissioner (Appeals) upheld the decision, leading to the appeal before the Tribunal.

Applicability of Rule 6(3) of Service Tax Rules, 1994:
The appellant argued that the excess payment was due to invoicing errors, not service provision, and was adjusted against the service tax for a subsequent period. They contended that Section 73 did not apply as it was not a case of short payment or non-payment of service tax. The appellant cited case laws and decisions supporting their position that the adjustment of excess service tax was permissible. The Tribunal analyzed the provisions of Rule 6(3) and considered the liberal interpretation of the rules, ultimately allowing the adjustment of excess service tax paid by the appellant during the relevant period.

Demand of Service Tax and Interest:
The department issued a show cause notice demanding the unpaid service tax of ?14,58,480 for September 2007, along with interest under Section 75 of the Finance Act, 1994. The adjudicating authority confirmed the demand, which was upheld by the Commissioner (Appeals). However, the Tribunal ruled in favor of the appellant, considering the circumstances of the case and the liberal interpretation of the Service Tax Rules, allowing the adjustment of excess service tax paid by the appellant.

Imposition of Penalty under Section 76:
Although the Joint Commissioner dropped the proposal for imposing a penalty under Section 76, the issue was not specifically addressed in the appeal before the Commissioner (Appeals) or the Tribunal. The Tribunal focused on the adjustment of excess service tax payment and the applicability of Rule 6(3) of the Service Tax Rules, ultimately setting aside the impugned order and allowing the appeal with consequential relief.

In conclusion, the Tribunal's judgment favored the appellant, allowing the adjustment of excess service tax payment made due to invoicing errors and not service provision. The decision highlighted the importance of a liberal interpretation of the rules in such cases, ultimately providing relief to the appellant in the matter of demand for service tax and interest.

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