PROVSIONAL ASSESSMENT UNDER SERVICE TAX PROVISIONS

[Mr. M. GOVINDARAJAN]

With effect from the year 2001 the service tax is payable on self assessment basis.   The assessee is to ascertain the tax payable by him and pay the tax and file the return within the time and in the manner prescribed in the rules.   If the assessee fails to file return under Section 70, the , the Central Excise Officer, may require the person to produce such accounts, documents or other evidence as he may deem necessary and after taking into account all the relevant material which is available or which he has gathered, shall by an order in writing, after giving the person   an opportunity of being heard, make the assessment of the value of taxable service to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment, under Section 72.

Rule 6(4) provides that where an assessee is, for any reason, unable to correctly estimate, on the date of deposit, the actual amount payable for any particular month or quarter, as the case may be, he may make a request in writing to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, giving reasons for payment of service tax on provisional basis and the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, on receipt of such request, may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him and the provisions of the Central Excise (No.2) Rules, 2001, relating to provisional assessment, except so far as they relate to execution of bond, shall, so far as may be, apply to such assessment.

Rule 6(5) provides that Where an assessee under Rule 6(4) requests for a provisional assessment he shall file a statement giving details of the difference between the service tax deposited and the service tax liable to be paid for each month in a memorandum in Form ST-3A accompanying the quarterly or half yearly return, as the case may be.

Rule 6(6) provides that Where the assessee submits a memorandum in Form ST-3A under rule 6(5), it shall be lawful of the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be to complete the assessment, wherever he deems it necessary, after calling such further documents or records as he may consider necessary and proper in the circumstances of the case.

Thus after the filing of ST-3A return the provisional assessment should have been finalized by the Department on monthly basis or within six months as provided in Central Excise Rules.  Interest is liable to be paid on any amount payable consequent to the order of final assessment has been passed in respect of any month beyond the first date of succeeding month till the payment is made thereof.

In ‘Nyalchand Financial Services Limited V. Commissioner of Service Tax, Ahamedabad’ – 2010 (7) TMI 613 - CESTAT, AHMEDABAD the appellants   refunded brokerage with service tax but filed with refund claim with the department beyond one year.   This has happened because the refund is made on the basis of reaching a specific amount of turnover over a period whereas the required claim is for the period in which service tax was paid.  In such a system the refund claim cannot be submitted earlier as rightly pointed out by the appellants.   However the appellants failed to utilize the provisions of the law which provide for provisional assessment where the service tax cannot be determined correctly.   Once the appellants were liable to refund the amount received on the basis of turnover it was quite clear that the service tax could be determined correctly only when the period is over and the turnover is known.

In ‘Canara Bank V. Commissioner of Service Tax, Bangalore’ – 2014 (12) TMI 243 - CESTAT BANGALORE the request of the appellant bank for payment of service tax on provisional basis was allowed by the Department subject to the  following conditions:

• The assessee was required to deposit a sum of ₹ 4.5 crore provisionally on a monthly basis;

• The assessee was required to work out the amount payable for the previous month by the due date of next deposit; if the amount has been paid in excess, the same may be adjusted towards the monthly deposit of ₹ 4.5 crores;

• In case there is a short payment for a particular month the same shall be paid along with interest;

• The appellant was required to comply with the provisions of Rule 6(5); and

• Permission for provisional payment of service tax is applicable from the month of April 2005.

The Revenue contended that the appellant is liable to pay interest because the application requesting for payment of service tax on provisional basis is made as per the provisions of Section 75 of the Act and the same has been specifically mentioned in the letter issued to the appellant.

The Tribunal held that when the permission under rule 6(4) is granted the detailed procedure to be followed is one under the Central Excise Rules.   The claim of the Revenue as provisional assessment cannot be accepted.   It is not in dispute that no final assessment order was passed in respect of any month during the period in dispute (October 2007 to March 2008).  It is also not in dispute that the appellant did not follow Rule 6(5) of Service Tax Rules, which requires them to file a memorandum in Form ST-3A.

                        The following table depicts the pendency of provisional assessment:

Table – Pendency of cases of provisional assessment

Year	Cases pending at the end of year	Revenue involved (in Rs.Crore)	Age wise break up of pendency
			< 6 months	6 – 12 months	1 – 5 years	More than 5 years
FY 11	33	2338.89	3	2	18	10
FY 12	24	2346.75	1	2	11	10
FY 13	26	2032.54	2	5	10	9

Source: CA & G Report 6/2014                              

The above table shows that even though the pendency of provisional assessment is less in each year the pendency of cases more than five years and pendency of cases between one to five years are very high.

It is highly required, when the service tax is unable to finalize on self assessment basis for a particular period, to request for the provisional assessment.   For this purpose the assessee is to comply with the provisions of Rule 6(4) and 6(5).  The Department is to finalize the assessment within the time stipulated.  If not the assessee may stress the authorities for the finalization of provisional assessment.