Adjustment Process of Excess Service Tax Payments
According to the sub-rule (1) of Rule 6 of the Service Tax Rules, 1994 reads, “Provided also that the service tax on the value of taxable services received during the month of March, or the quarter ending in March, as the case may be, shall be paid to the credit of the Central Government by the 31st day of March of the calendar year.” Even otherwise, interest @18% per annum is chargeable under Section 75 of the Finance Act, 1994, for delayed payment of service tax. There are cases where industries pays excess service tax to the credit of Central Government due to miscalculation of service of value, pending of the information regarding the actual receipt of the values of the taxable services provided or paid service tax to the credit of Central Govt. on services which was later not provided for any reason which later appears that excess service tax has been paid. How we can adjust the excess payment of service tax against the future liability or Is there any period or monetary restriction for such adjustments?
As Illustrated: Whether the excess payment of service tax of Rs. 10 lakhs during the month of March, can be adjusted straightaway throughout the tax liability due for April, or it can be adjusted in the coming months if any balance left?
In the contrast this with sub-rule (3) of rule 6 of the Service Tax Rules, 1994, which reads,
“(3) Where an assessee has paid to the credit of Central Government service tax in respect of a taxable service, which is not so provided by him either wholly or partially for any reason, the assessee may adjust the excess service tax so paid by him (calculated on a pro rata basis) against his service tax liability for the subsequent period, if the assessee has refunded the value of taxable service and the service tax thereon to the person from whom it was received.”
In the above scenario, where an assessee paid service tax in advance, who later on did not provide any service, hence there was no liability on his part to pay the service tax in the first instance, as per the above sub-rule, in case he refunded the service tax to the person from whom he received, can adjust the amount without any restriction on the amount or the period. Notice the words, ‘for the subsequent period’ in the above sub-rule (3) against the words, ‘for the succeeding month or quarter’ of sub-rule (4A)
Sub-rule (1A) of rule 6 of the Service Tax Rules, 1994, which reads as follows.
“(1A) Without prejudice to the provisions contained in sub-rule (1), every person liable to pay service tax, may, on his own volition, pay an amount as service tax in advance, to the credit of the Central Government and adjust the amount so paid against the service tax which he is liable to pay for the subsequent period:
Provided that the assessee shall: intimate the details of the amount of service tax paid in advance, to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such payment; and indicate the details of the advance payment made, and its adjustment, if any in the subsequent return to be filed under section 70 of the Act;
Explanation: For the removal of doubt, it is hereby clarified that in case the value of the taxable service is received before providing the said service, service tax shall be paid on the value of service attributable to the relevant month, or quarter, as the case may be.”
In the above case, an assessee can pay service tax in advance and adjust the same as and when he receives the taxable value on pro rata basis during the subsequent period. There is no restriction as to the amount and the period of adjustment, as in the case of non–provision of service mentioned in sub-rule (3) of rule 6. Notice the words, ‘for the subsequent period’ in the above sub-rule (1A), against the words, ‘for the succeeding month or quarter’ of sub-rule (4A).
Sub-rules (4A) and (4B) of rule 6 of the Service Tax Rules, 1994 which are relevant, read as follows.
“(4A) Notwithstanding anything contained in sub-rule (4), where an assessee has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month or quarter, as the case may be, the assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter, as the case may be.
(4B) Reason for adjustment: Adjustment shall be possible if excess payment of service tax for a month/quarter (as the case may be) shall be for any reason other than following:
(i) Wrong interpretation of law;
(ii) Taxability, classification or valuation of taxable services;
(iii) Applicability of any exemption Notification
(ii) Monetary limit: Excess payment made for a month/quarter (as the case may be) can be adjusted within a monetary limit of Rs. 2 lakh. However, Adjustment of excess payment made, in case of Centralized Registration, due to delay in receipt of details from other offices (branches), can be done without any monetary limit.
Amendment: W.e.f.01.04.2012, rule 6(4B) has been amended vide notification no. 3/2012 dated 17.03.2012 to remove conditions mentioned in column (ii) & (iii) hereinabove. Now, adjustment of excess payment of service tax made can be adjusted without any monetary limit. Further no intimation is required to be filed with Superintendent. However, adjustment of excess payment made shall be reflected in service tax return of the assessee.
Sub-rule (4) of rule 6 reads as follows.
“(4) 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.”
So, in the cases of advance payment, centralized accounting system and non-provision of taxable service, there is no restriction as to the amount and period, as to the adjustment of excess payment of service tax. In the case of excess payment (rule 4A & 4B) simpliciter alone, such adjustment can be made only once during the subsequent month or quarter, as the case may be, without any monetary limit.
For example: An assessee paid an excess service tax of rupees 5 lakh in the month of March, and his liability to pay service tax for the month of April is 2 lakh rupess, so 2 lakh rupees can be adjusted out of excess payment of 5 lakh made in march, but the balance of 3 lakh rupees cannot be adjusted due to period restriction and therefore the assessee has to claim refund for the balance amount of 3 lakh rupees.
The reasons for the stipulation of period restrictions imposed on adjustment of excess payment of service tax (sub-rule 4) appears improper, although the alternate path of filing of refund claim is available, which is a bit cumbersome procedure when compared with the self-adjustment of excess payment of Service Tax by the assessee.
Initially there was a restriction on Monetary limits also but by virtue of the notification no. 03/2012 dated 7/03/2012 the Monetary limits has been abolished by the finance act but Time limits for adjustment of excess service tax payment is still a issue before us.