2016 (11) TMI 785 - AT - Service Tax

Levy of service tax on accrual basis - transaction with associated persons - when the debit/credit entry was made in the account in terms of Rule 6 of Service Tax Rules, 1994 - Held that - I find that the issue is revenue neutral, in so far as the Service Tax paid by the appellant is available as credit to them. The issue is of interpretation. In these circumstances, no motives can be alleged and therefore, extended period of limitation cannot be invoked. In view of the above, the appeal is allowed.

Summary

Issues:
Interpretation of Rule 6 of Service Tax Rules, 1994 regarding the timing of payment of Service Tax for services received from an associate company located overseas.

Analysis:
The judgment by the Appellate Tribunal CESTAT Mumbai involved a dispute regarding the payment of Service Tax by M/s Persistent System Ltd. for services received from their associate company overseas. The Revenue contended that the Service Tax should have been paid when the debit/credit entry was made in the accounts, as per Rule 6 of Service Tax Rules, 1994. The rule included an explanation stating that any amount credited or debited to the account of the person liable to pay Service Tax should be considered as payment towards the taxable service. The Revenue demanded interest and penalty, citing an extended period of limitation.

The appellant argued that the situation was revenue neutral as they were entitled to take credit for the Service Tax paid, indicating no intention to evade duty payment. They contended that the explanation in Rule 6 clarified that the gross amount charged included amounts credited or debited, unrelated to the due date of payment. The appellant also relied on a previous Tribunal decision in a similar case.

The learned AR supported the impugned order, emphasizing that the amendment to Rule 6 in 2006 applied during the disputed period and prescribed the manner and timing of duty payment. The AR argued that the explanation in Rule 6 was crucial for determining the payment of duty.

Upon considering the arguments, the Tribunal found the issue to be revenue neutral since the Service Tax paid was available as credit to the appellant. The matter primarily revolved around interpretation, with no motives for alleged evasion. Consequently, the Tribunal held that the extended period of limitation could not be invoked, leading to the allowance of the appeal in favor of the appellant. The judgment was pronounced on 01.07.2016 by Shri Raju, Member (Technical) of the Tribunal.