2009 (9) TMI 189 - AT - Service Tax

Adjustment of tax - The assessees who are providing commissioning and installation service had collected service tax for services provided by them during the period May to June, 2003 during which commissioning and installation was not a taxable service. Subsequently, they refunded the amount to the service receiver by way of issue of credit notes and then adjusted the amount towards service tax admittedly payable for the month of July, 2003. The Revenue objected to the adjustment on the ground that it was contrary to the provisions of Rule 6(3) of the Service Tax Rules, 1994 which provides for adjustment only if the value of taxable service and service tax has been refunded to the person from whom it was received. Held that Rule 6(3) applicability arises only when any service rendered is a taxable service - the question of denial of adjustment on the ground that the assessees refunded only the service tax amount and not the value of taxable service, together with the service tax, does not arise Revenue s appeal rejected

Summary

Issues:
1. Whether adjustment of service tax collected for non-taxable services is permissible under Rule 6(3) of the Service Tax Rules, 1994.

Analysis:

The judgment by the Appellate Tribunal CESTAT, CHENNAI involved a dispute regarding the adjustment of service tax collected for non-taxable services under Rule 6(3) of the Service Tax Rules, 1994. The assessees had collected service tax for commissioning and installation services provided during a period when such services were not taxable. Subsequently, they refunded the amount to the service recipients and adjusted it towards the service tax payable for a later period. The Revenue objected to this adjustment, citing Rule 6(3) which allows adjustment only if both the value of taxable service and service tax have been refunded. The adjudicating authority upheld the objection, but the Commissioner (Appeals) set it aside based on a previous Tribunal decision. The Revenue appealed, arguing that the adjustment was not permissible under Rule 6(3).

Upon hearing both sides, the Tribunal noted that commissioning and installation services were not taxable before July 2003 when the amount was collected and refunded. Rule 6(3) applies only when a service rendered is taxable. Since the service in question was not taxable during the relevant period, the Tribunal held that the denial of adjustment based on the refund of only the service tax amount, and not the value of the taxable service along with the tax, was not applicable. Therefore, the Tribunal upheld the decision of the Commissioner (Appeals) and rejected the Revenue's appeal. The judgment clarifies that adjustment under Rule 6(3) is not permissible for non-taxable services, and the specific conditions of the rule must be met for such adjustments to be valid.