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TMI Blog2015 (9) TMI 1097X X X X Extracts X X X X X X X X Extracts X X X X ..... ount not paid or short-paid. This should have been effected in the impugned order but, not having been done, needs to be remedied. In the circumstances of discharge of tax liability by the appellant, there is no justification to invoke the extended period and consequent penal provisions under section 78 of Finance Act, 1994. Penalty under section 77 of Finance Act, 1994 is also set aside. The penalty under section 76 of Finance Act, 1994 is set aside as there is no tax due on the date of notice. - Decided partly in favor of assessee. - Appeal Nos. ST/85822 & 85823/2013 - Final Order Nos. A/2997-2998/2015-WZB/STB - Dated:- 8-9-2015 - M. V. Ravindran, Member (J) And C J Mathew, Member (T), JJ. For the Appellant : Shri Badri Narayanan, Adv For the Respondent : Shri K S Mishra, Additional Commissioner (AR) ORDER Per C J Mathew This proceeding takes up two appeals filed by M/s General Motors (I) Pvt Ltd arising from a common ordcer-in-original relating to two show cause notices for two periods viz., from April 2009 to June 2010 and from July 2010 to December 2011. The impugned order no. 31-32/ST/RKS/P-I/2012 dated 5 th November 2012 of Commissioner of Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprise , to arrive at the conclusion that the monthly accounting entries relating to royalty in the books of the appellant are the consideration which is liable to be taxed by the stipulated date of the following month. The original authority had held that there was a short-levy at the end of each month since Explanation to Rule 6 required the inclusion of debit/credit of any amount relating to royalty in any account, whether called suspense or otherwise, in taxable consideration where the transaction is between two associate enterprises for determining tax liability. 4. The appellant contends that, in doing so, the original authority has chosen to disregard the fundamental fact that the entries in their books are provisional and solely for the purpose of furnishing Management Information System (MIS) reports to the holding company which are reversed at the time of the final entry at the end of each quarter once the net selling price as well as other details relevant to calculation of dues to the suppliers of know-how are made available. It is further contended that the manner and schedule of payment of dues to suppliers of know-how are embodied in the agreements with the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service can be said to subsist as long as the owner of the technical know-how allows it be used in the production of the specified models. Though the know-how is continuously available to the appellant, its usage is limited to each unit of production; the consideration thereof is relatable to the production and sale of each unit so produced. This is the special circumstance that is critical for determining the taxable event as laid down in Finance Act, 1994 - neither is it a one-time supply nor a continuous supply but utilized every time a vehicle is on the assembly line. 8. The learned Counsel for the appellant has made a lengthy submission to present the case relating to computation of value of taxable service in terms of Explanation to Rule 6. Before we take up that in detail, we feel that the resolution of the dispute can be furthered only with a cleaner understanding of accounting principles and systems. This is unavoidable because the statutory definition relevant to specific situations such as that of the appellant explicitly refers to inclusion of book entries for valuation of the taxable service effective from 10 th May 2008 with insertion of Explanation to Rule 6 of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration with accuracy should be the criteria for determining the taxable event. The certainty and clarity required of taxing statutes cannot leave such a critical aspect as taxable event to the whims of a contract between two entities or to be conditional upon a perfection sought for in such contracted agreement. The delivery of the service at its destination becomes the taxable event subject, by the law as it then stood, to payment for the service. With the insertion of the Explanation in Rule 6 of Service Tax Rules, 1994, effective from 10 th May 2008 such payment was imbued with a more comprehensive meaning in so far as transaction between associated enterprises is concerned. The value was not restricted to payment per se but was liable to supplemented by accounting entries relating to the service transacted between associated concerns. That is the conclusion arrived at by the original authority before proceeding to hold that the books entries made at the end of each month determines the point at which the tax is liable to be paid. 10. The learned Counsel for the appellant would submit that the agreement specifies that the royalty is payable every quarter and, that till the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholder value and this deeming provision aims to disincentivize such tendencies. It is quite probable that the intent of the appellant and the associated concerns may not have been so but such a distinction based on intent, as the learned Counsel would have us accept, does not only not find a place in the provision but is also anathema to non-discriminatory taxation. The deeming effect of the Explanation has to be applied wherever accounting entries relating to the service transaction finds a place in the books of the person liable to pay the tax. 12. The learned Counsel for the appellant has attempted to lay emphasis on the debit entry in the books of the person liable to pay tax as the due date intended in Explanation in Rule 6. This restrictive interpretation of legislative intent has drawn upon the assumption that the debit and credit are independent unconnected entries in books of accounts and that, for the purposes of the Explanation, debit entry is all that is relevant when tax liability devolves on the recipient of service. In this attempt it has been overlooked that the Explanation is unambiguous about the circumstances intended to be covered, viz., the passing of entri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Rule 6 of Service Tax Rule, 1994 and Rule 7 of Point of Taxation Rules, 2011, the tax liability needs to be computed for each month on the amount booked in the royalty accrued account with the reversal being taken into account whenever that has occurred. Needless to state, in such month, it would be tantamount to taxes paid in advance and liable to be adjusted against taxes due in the month(s) thereafter. Owing to absence of any definite computation in the impugned order and the claim of reversal, as well as that of tax payment, not having been doubted in the impugned order, it would appear that tax liability has indeed been discharged in full though belatedly in some months. A test computation for July to September 2009 and April to June 2011, relating to which extracts of ledger have been furnished in these proceedings, after allowing exemption of service tax on related intellectual property service to the extent of Research Development cess paid as per notification 17/2004-ST dated 10 th September 2004, has confirmed it to be so. There being no alternative finding in the impugned order, we find no reason not to conclude so. Revenue neutrality arising from availmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consolidated Fund of India does not require another appropriation. Adjudication that resort to appropriation, such as the present one, manifest their lack of clarity about the actual dues recoverable; without the convenient cover of appropriation, adjudicating authority would have had to focus on computation of taxes liable to be recovered. Had that been done, the impugned order would have been appropriately precise. 18. Consequently, we sustain the finding in the impugned order that tax liability of the appellant arises each month for the amount booked, even provisionally, as royalty in their accounts, but with the deductions of amounts paid as R D cess, (as recorded by us in paragraph no. 14), if any. We set aside the demand for tax in view of findings supra regarding discharge of tax liability and direct the jurisdictional Commissioner to compute and intimate the appellant, within thirty days of the receipt of this order, of any interest that arises from delayed payment of duty. In the circumstances of discharge of tax liability by the appellant, there is no justification to invoke the extended period and consequent penal provisions under section 78 of Finance Act, 1994. Pen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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