2024 (8) TMI 718 - AT - Service Tax

Adjustment of short-payment of tax with excess payment - erroneous paid service tax on services exported to overseas clients, which the Department has accepted as refundable u/s 11B of the Central Excise Act, 1944 - recovery could be effected by invoking larger period of limitation or not. Adjustment of outstanding inadmissible credit against excess payment of service tax - HELD THAT - In the event, the assessee pays service tax in respect of a taxable service which is not paid by either wholly or partially for any reason, he may adjust the service tax so paid by him against the service tax liability for the subsequent period. Therefore, it is clear that the assessee is allowed to adjust service tax excess paid against the service tax liability for the subsequent period. Whereas in the present case, the appellant had erroneously availed cenvat credit of Rs.2,03,69,972/- and sought to adjust against service tax paid on export of services previously which cannot be considered as an adjustment of service tax relating to service tax liability for the subsequent period. However, it is found that erroneous availment of cenvat credit under Rule 3(5) of the Cenvat Credit Rules, 2004 could be recoverable only after insertion of the recovery provision to the said Rule by insertion of an Explanation through amending Notification No.3/2013-CE(NT) dated 01.03.2013 as amended only w.e.f. 01.03.2013. Invocation of extended period of limitation - HELD THAT - It is found that the Department was aware of the adjustment of the inadmissible cenvat credit against the excess service tax paid since February 2007 as communications have been exchanged between the appellant and Department resulting to payment of interest in March, 2009; and the show-cause notice was issued on 15.06.2009 i.e. after two years; thus invocation of extended period of limitation alleging suppression of fact cannot be sustained. The impugned order is set aside and appeal is allowed.

Summary

Issues:
1. Whether adjustment of outstanding inadmissible credit against excess payment of service tax is permissible.
2. Whether recovery could be effected by invoking a larger period of limitation.

Analysis:
The appellant filed an appeal against the Orders-in-Original passed by the Commissioner of Central Excise & Service Tax-LTU, Bangalore. The appellant was engaged in providing taxable services and had availed inadmissible cenvat credit on inputs removed from registered premises for trading activity. They voluntarily reversed the cenvat credit availed by adjusting erroneously paid service tax on exported output services. A show-cause notice was issued for recovery of the cenvat credit amount, interest, and penalty. The appellant argued that excess duty/tax should be adjusted against short-payment, citing legal precedents. They contended that recovery provision was absent during the relevant period. The appellant also claimed the demand was time-barred due to continuous communication with the Department regarding the adjustment of excess service tax paid. The Revenue reiterated the Commissioner's findings.

The main issues were whether adjustment of inadmissible credit against excess service tax payment and recovery through a larger period of limitation were permissible. The Tribunal analyzed Rule 6(3) of the Service Tax Rules, 2004, which allows adjustment of excess service tax paid against subsequent liabilities. However, the Tribunal found that the appellant's attempt to adjust cenvat credit against service tax on exported services did not align with the rule's provisions. The Tribunal noted that the recovery provision for cenvat credit was inserted only from 01.03.2013, making the Commissioner's recovery direction erroneous. Legal precedents supported the Tribunal's interpretation regarding the recovery mechanism's applicability.

The Tribunal also considered the limitation period, stating that the Department was aware of the adjustment since February 2007, and the show-cause notice was issued after two years, leading to the conclusion that the extended limitation period due to alleged suppression of facts was not valid. Consequently, the impugned order was set aside, and the appeal was allowed. The Tribunal's decision was based on the absence of a recovery mechanism before 01.03.2013 and the lack of suppression of facts by the appellant. The Revenue's appeal against a similar decision was mentioned, but no stay was granted by the High Court.