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TMI Blog2007 (12) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax (Appeals) erred in not appreciating the fact that it is only the discretion exercised by the assessee not to route the receipt of service taxes through the profit and loss account." 2. The brief facts of the case are that the assessee-company is engaged in the business of running a recording and dubbing studio, production of advertisement film and TV serials, manufacturing of specialised computers, trading in technical solutions, production of distribution of feature film and software development. During the assessment proceedings the Assessing Officer noticed that service tax was not being routed through the profit and loss account and the assessee had shown liability towards service tax at Rs. 5,72,374 as on March 31, 2002, in its balance sheet. Upon enquiry to furnish the proof regarding payment of service tax on or before due date for filing of return of income it was submitted as under : " Note on the applicability of section 43B for service tax payable : Service tax a Central tax that was introduced by making provisions in Chapter V of the Finance Act, 1994 (section 64 to section 96). The Act provides the method of levy, the circumstances in which the levy would ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentatives, it nowhere appears that the service tax payable shown at Rs. 5,72,374 has been remitted on or before the due date of filing the return of income." 4. In the back ground of these observations, a sum of Rs. 5,72,374 being service tax which was not paid before the due date for filing the return of income was added to the income of the assessee. 5. Before the Commissioner of Income-tax (Appeals), two fold submissions were made. Firstly it was contended that section 43B starts with the non-obstante clause and specifies that the deduction " otherwise allowable" under the Act shall not be allowed unless it is actually paid. This means, that the claim should be first preferred by the assessee and the same could be disallowed under section 43B only for the reason of failure to make actual payment. If an assessee had not preferred any claim towards service tax, there was no question of disallowing the same. Secondly, it was argued that section 67 of the Finance Act which deals with the service tax was amended with effect from October 16, 1998, and provided that the duty of paying service tax is on the person providing the service in the prescribed manner and this manner was pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the month immediately following the calendar month in which the payments are received. Therefore, the incidence of payment of service tax was related to the receipt of payment mentioned on the billing of the service. 9. Learned counsel for the assessee vehemently argued that service tax is basically different from sales tax, provident fund, ESI, excise duty etc., referred to section 43B of the Income-tax Act, because sales tax is payable by a dealer as per the Central Sales tax Act and various state sales tax Acts on a specified date of the following month in which the sale is completed irrespective of the fact whether the payment is received by the dealer or not. The liability would arise as soon as the incidence of sale is completed. Similarly, the liability to excise duty is attracted the moment the goods are removed from the warehouse or godown. In the case of PF and ESI, the liability to pay is on the employer irrespective of the fact whether the employer has recovered the same from its employees or not. Whereas in the case of service tax, it becomes payable only when it is received from the client. 10. Learned counsel for the assessee also referred to section 145A of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that for the purpose of determining the income chargeable under the head " Profits and gains of business or profession", the amount of purchase and sales i.e., turnover would include any tax, duty, cess or fee. Therefore, the rigour of section 43B may be applicable in the case of sales tax or excise duty but the same cannot be said to be the position in the case of service tax because of two reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Government and paid to the Government accordingly. Therefore, a service provider is merely acting as an agent of the Government and is not entitled to claim deduction on account of service tax. Hence, on this account alone addition under section 43B could not be made and the same has been correctly deleted by the Commissioner of Income-tax (Appeals). 15. The second aspect of this issue is also important. Section 43B(a) uses the expression " any sum payable". For making any disallowance, first of all it has to be established that such sum is payable. The dictionary meaning of the word " payable" in Concise Oxford English Dictionary is : 1. required to be paid; 2. able to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... territory of India." 19. The above provision clearly shows that the dealer would become liable to make sales tax payment the moment he effects the sales in the course of an inter-State trade or commerce. This shows that the liability to make payment of sales tax is not depending on the fact whether such dealer has received the payment from the customer of the goods or not. The liability is fastened to the transaction in sales and once such sale is effected, the dealer becomes liable to pay. 20. Now, in the case of service tax, when and how the amount becomes payable has been provided in section 68 of the Finance Act, 1994 as well as rule 6 of the Service tax Rules which read as under: " 68. Payment of service tax.-(1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such per son and in such manner as may be prescribed at the rate specified in section 66 and all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f there is no liability to make the payment to the credit of the Central Government because of non receipt of payments from the receiver of the services, then it cannot be said that such service tax has become payable in terms of clause (a) of section 43B because that clause specifically mentions " sum payable by the assessee" . In this regard, the hon' ble Andhra Pradesh High Court in the case of Srikakollu Subba Rao and Co. v. Union of India [1988] 173 ITR 708 has made the following observations (page 718 of ITR) : " 17. One other contention addressed to us is that the liability to pay sales tax for the month of March 1984, was disallowed in terms of section 43B in all the cases before us. Shri Swamy, learned counsel, pointed out that the petitioners filed A2 monthly returns according to which they pay the taxes. Our attention has been invited to rule 17 of the Andhra Pradesh Sales tax Rules, 1957, which in terms, provides that the tax in relation to the return shall be paid before the 25th day of the succeeding month. It is urged that where the statute itself prescribes the date of payment no exception could be taken acting under section 43B, that the amount was not paid r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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