2022 (3) TMI 510 - AT - Service Tax

Recovery of short paid service tax - Construction of Complex Service - adjustment of the excess service tax paid during period October 2010 to September 2011, during the period October 2011 to March 2012 - period from October 2011 to March 2012 - recovery of interest - extended period of limitation - demand of penalty - HELD THAT - Admittedly the service tax on the activities undertaken by the appellants was introduced with effect from 22.06.2010. Initially appellants discharged the tax liability on the transactions undertaken by them on the accrual basis. Financial Accounting in India is mostly on the accrual basis. All the direct and indirect taxes are also based following the principal of Financial accounting on the accrual basis. In the accrual basis of Financial Accounting a transaction gets accounted for all the purposes in the books of account on the date when the document relating to the transaction are prepared - Service Tax when introduced followed the receipt based accounting system for levy and collection of tax. The assessee was obliged to pay the taxes on the basis of the gross amounts received during the taxing period. Service Tax when introduced followed the receipt based accounting system for levy and collection of tax. The assessee was obliged to pay the taxes on the basis of the gross amounts received during the taxing period. - the entire issue is because of the change in the manner of accounting of the transaction for the purpose of computation of service tax liability from the accrual basis to the receipt basis. The issue needs to be adjudged in the favour of appellant - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Compliance with the provisions of Finance Act, 1994 regarding short payment of service tax.
2. Legitimacy of adjustment of excess service tax paid during one period against the liability of a subsequent period.
3. Invocation of the extended period and imposition of penalties.

Detailed Analysis:

Issue 1: Compliance with Provisions of Finance Act, 1994
The appellant short-paid service tax amounting to ?18,85,237/- for the period October 2011 to March 2012, which they subsequently paid along with interest before any show cause notice was issued. According to Section 73(3) of the Finance Act, 1994, if the short-paid amount is paid along with interest before the issuance of a show cause notice, no further proceedings for confirmation of demand or imposition of penalty should be initiated. The Tribunal observed that since the appellant had complied with these provisions by paying the shortfall and interest on 03.05.2012, no further proceedings or penalties should have been imposed.

Issue 2: Adjustment of Excess Service Tax
The appellant claimed an adjustment of ?11,72,880/- excess service tax paid during October 2010 to September 2011 against the liability for October 2011 to March 2012. The Tribunal examined the appellant's contention and noted that the excess payment was due to a shift from accrual basis to receipt basis of accounting. The Tribunal found that the appellant had indeed paid service tax on the gross agreement value rather than the actual receipts, leading to excess payment.

The Tribunal referred to Rule 6(4A) of the Service Tax Rules, 1994, which allows adjustment of excess payment against future liabilities, provided the excess payment is not due to reasons involving interpretation of law, taxability, valuation, or applicability of any exemption notification. The Tribunal determined that the excess payment was not due to these reasons but due to a change in accounting methods. The Tribunal also noted that the appellant had informed the department about the adjustment, albeit slightly late, and ruled that such procedural lapses should not deny the substantial benefit of adjustment. The Tribunal cited several precedents supporting this view, including Garima Associates and Dahej Harbour and Infrastructure Ltd., which allowed adjustments despite procedural lapses.

Issue 3: Invocation of Extended Period and Penalties
Given the Tribunal's findings on the merits of the case, the issue of invoking the extended period and imposing penalties became redundant. The Tribunal did not find it necessary to discuss this issue further.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal. The Tribunal ruled that the appellant's payment of the shortfall along with interest before the issuance of a show cause notice complied with Section 73(3) of the Finance Act, 1994, and thus no further proceedings or penalties were warranted. Additionally, the Tribunal upheld the appellant's right to adjust the excess service tax paid during one period against the liability of a subsequent period, despite minor procedural lapses. The Tribunal's decision was pronounced in the open court.

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