The
Service Tax Rules, 1994 were amended by the Service Tax Rules, 1998 w.e.f. 16‑10‑1998
with a view to provide self‑adjustment by the assessee for the excess
payment of service tax paid by him. Prior to said amendment, there was no
provision for the self‑adjustment of excess service tax paid by the
assessee, only remedy was available to claim refund under section 11B of the
Central Excise Act, 1944.
Where an
assessee has paid service tax in respect of taxable service w.e.f. 16‑10‑1998,
the assessee may adjust the excess service tax so paid by him (calculated on a
pro rata basis) against the service tax liability for the subsequent period
provided that services are not provided by him either wholly or partially for
any Teason, and the assessee has refunded the value of taxable service and the
service tax thereon [sub‑rule (3) of rule 6].
Therefore,
the adjustment of excess service tax paid is possible only if following
conditions are satisfied
(i) assessee has paid the service tax in
respect of the value of taxable services
(ii) taxable service was not rendered either
wholly or partially for any reason
(iii) the assessee has
refunded the value of taxable services and tax thereon to the person from whom
it was received
In the
aforesaid case the assessee is allowed to adjust the excess payment of service
tax for his service tax liability for the subsequent period.
Circumstances
when adjustment is not allowed
In case
the assessee has paid the excess service tax due to any reason other than those
mentioned under sub‑rule (3) of rule 6 then he would not be entitled to
avail the self‑adjustment facility under the aforesaid rule. The assessee
may pay excess service tax due to clerical mistake like wrong calculation or
excess charge of service tax from the client or charging of tax for non‑taxable
services etc. In this case, only remedy would be to apply for the refund under
section 11B of the Central Excise Act, 1944. The Central Board of Excise and
Customs in answer to question No. 3.15 of the 'Frequently asked questions on
Service Tax' issued in October 2003 has stated, "in all other cases (which
are not covered by sub-rule (3) of rule 6) of excess payment, the refund claims
have to be filed with tile department".
Practical applicability of sub‑rule (3) of rule 6
As discussed above the adjustment of excess service tax paid is possible only when taxable services were not rendered either wholly or partially. Therefore, it is important to know, whether such self‑adjustment is practically possible or not.
Now the
two questions arise:
1. When is the assessee liable to pay the
service tax?
2. Whether the liability to pay service
tax arises if the services were not provided?
As per sub‑section
(104) of section 65 'taxable services' means 'any service provided' and as per
sub‑rule (1) of rule 6, the service tax is required to be paid when the
value of 'taxable services' is 'received'. Therefore, when the service has not
been rendered but any amount is received against such services then it can not
be said that amount was received against the 'taxable services' because
'taxable services' means when service is actually 'provided'. The amount so
received shall be treated as advance and as per the provisions discussed above
liability in this case, on amount so received, shall arise only when service is
actually rendered against such amount. If the amount was refunded to the person
from whom it was received without rendering him any services, the question of self‑adjustment
of tax may not arise because the assessee was not required to pay any service
tax on such amount as discussed above.
The self‑adjustment
of excess tax paid is possible only if the assessee has paid tax, without
rendering the services, either wholly or partially, provided all other
conditions set out in sub‑rule (3) of rule 6 are fulfilled. For instance,
in case of telephone services' there is normal practice, the service provider
charges the advance amount in respect of rent and other services, and service
tax from the subscriber. If such tax is paid by the service provider in the
credit of Central Government account, but such service is not provided to the
subscriber, for instance on account of subscriber discontinuing the services or
rent is reduced, as the case may be. In such case, if the service provider
refunds to the subscriber, such advance amount (in respect of rent and other
services) along with tax thereon, service provider can make the self‑adjustment
of such excess tax against the service tax liability for the subsequent period.
Therefore, it can be concluded that the self‑adjustment of excess service tax paid in the circumstances set out under sub‑rule (3) of rule 6 is possible only in the aforesaid case otherwise it has no practical applicability of said provision. In any other circumstances, where the assessee has made the excess payment of service tax, he has no option but to resort to refund under section 11B of the Central Excise Act. The procedure for refund has been discussed separately in this book.
In a
representation made by the author to the Commissioner, Central Excise &
Customs, New Delhi, clarification was sought:
"Whether
the Service Tax is required to be charged on the amount received from client on
the ad hoc basis, where service has already been rendered but bill has not yet
been issued because the fees is not yet settled for the services. In case, if
service tax is charged and deposited but ultimately bill was raised (as earlier
it was not issued) for lesser amount, whether
assessee can take the benefit of adjustment of service tax under sub‑rule
(3) of rule 6? OR, assessee is required to file the refund application?"
The
department has clarified the point; "Service tax is required to be paid on
taxable service received/ realized. Under sub‑rule (3) of rule 6 of
Service Tax Rules, 1994, the adjustment of excess payment of service tax by an
assessee, can be made on pro rata basis, where an assessee has paid service tax
in respect of taxable services which is not so provided by him either wholly or
partially for any reason and assessee has refunded the value of taxable service
and the service tax thereon to the person from whom it was received. In all
other cases of excess payment, refund claim has to be filed with the
department". The author is of the opinion that in such case, self‑adjustment
under sub‑rule (3) of rule 6 is not possible.