2006 (4) TMI 15 - AT - Service Tax

Service Tax Excess tax payment made in half year cannot be adjusted against excess payment made in another half year cover by ST-3 return and adjustment can occurred only if assessee has refunded value of taxable service and service tax

Issues Involved:
1. Demand and penalty of service tax for the period April 1999 to September 1999.
2. Demand and penalty of service tax for the period October 1999 to March 2000.
3. Adjustment of excess service tax payments against short payments.
4. Applicability of Rule 6(3) and Rule 7(4) of the Service Tax Rules, 1994.

Detailed Analysis:

1. Demand and Penalty of Service Tax for April 1999 to September 1999:
The appellant company, registered as a service provider in marketing research services, filed a delayed tax return for April 1999 to September 1999. Consequently, a show cause notice was issued for recovery of short-paid tax, interest, and penalties under Sections 76 and 77 of the Finance Act, 1994. The adjudicating authority made an ex-parte order demanding Rs. 87,720/- as service tax, an equal penalty under Section 76, an additional penalty of Rs. 5,600/- for delay in filing returns, and interest of Rs. 78,266/-. The Commissioner (Appeals) upheld the demand and penalties.

2. Demand and Penalty of Service Tax for October 1999 to March 2000:
For the period October 1999 to March 2000, the appellant filed a delayed return, leading to a show cause notice for recovery of Rs. 2,55,929/- as service tax and proposed penalties. The adjudicating authority demanded the service tax and imposed penalties of Rs. 200/- per week from 25.11.1999 under Section 76 and Rs. 400/- under Section 77 for the delay. The Commissioner (Appeals) upheld the demand and penalties but reduced the penalty rate to Rs. 100/- per day.

3. Adjustment of Excess Service Tax Payments:
The appellant contended that under Rule 7(4), excess payments made in December 1999 and January 2000 should be adjusted against short payments within the same half-yearly period. The Commissioner (Appeals) and the department argued that adjustments of taxes paid in different months were not permissible under Rule 6(3) or Rule 7(4). The Tribunal clarified that Rule 7(4) allows for the adjustment of excess payments within the same half-yearly return but not between different half-yearly periods. The Tribunal remanded the case to the Commissioner (Appeals) for verification of whether the "Assessment Memorandum" was completed by the assessing officer for the period October 1999 to March 2000.

4. Applicability of Rule 6(3) and Rule 7(4):
The Tribunal held that Rule 7(4) requires the assessing officer to assess service tax on a half-yearly basis and adjust any excess or deficiency within that period. Rule 6(3) applies only if the assessee refunds the value of taxable service and tax to the recipient, which was not proven by the appellant. Therefore, the appellant's claim for adjustment of excess payments from a prior period was not accepted.

Judgment Summary:
The Tribunal allowed the appeal for the period October 1999 to March 2000 (Appeal No. ST/70/04) and remanded it to the Commissioner (Appeals) for fresh consideration. The appeal for the period April 1999 to September 1999 (Appeal No. ST/71/04) was dismissed, as the appellant failed to prove entitlement to adjustments under Rule 6(3). The Tribunal emphasized the necessity of half-yearly assessments and the proper application of Rule 7(4).

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