Excess Service Tax Can Be Adjusted Against Liability Beyond Immediately Succeeding Period: CESTAT Chennai

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 31 August held that excess service tax paid by a taxpayer can be adjusted against tax liability arising in later months or quarters and is not restricted to the immediately succeeding month or quarter.

A Bench of Judicial Member P. Dinesha and Technical Member M. Ajit Kumar allowed appeals filed by BASF Catalysts India Pvt. Ltd., relying on an earlier Division Bench decision in South India Aluminium Company v. CGST & Central Excise, Chennai, which had settled the issue. It observed:

“It can be reasonably understood that the Rule intends an assessee to adjust excess payment to his liability that is accrued later. This is to avoid hassles of a refund claim. When there is already excess amount in the hands of the Revenue, while making such adjustment, there is no revenue loss.”

The dispute arose after the Department objected to BASF Catalysts adjusting service tax paid in advance against its liability in subsequent periods.

The Revenue took the view that Rule 6(4A) of the Service Tax Rules, which permits adjustment of excess service tax paid against subsequent liability, allowed such adjustment only against the liability for the succeeding month or quarter. On this basis, demands along with interest and penalties were confirmed against the company.

BASF Catalysts contended that the dispute arose from double accounting. It submitted that service tax had already been paid under the reverse charge mechanism when provisions were made in its books for services received from foreign associate enterprises. When the actual invoices were subsequently received, the same value was inadvertently reflected again in the ST-3 returns and added to its tax liability.

The company therefore argued that there was no actual short-payment of service tax. It further submitted that even if Rule 6(4A) applied, the provision did not restrict adjustment to the immediately succeeding month or quarter.

The Tribunal noted that Rule 6(4A) does not use the word “immediate”. It held that excess service tax already lying with the Revenue could therefore be adjusted against liability arising later, instead of requiring the taxpayer to seek a refund.

The Bench also observed that its Division Bench in South India Aluminium Company had considered an identical issue and held that the expression “succeeding month or quarter” could not be read as meaning only the “immediately succeeding” month or quarter.

Further, it observed that the Revenue retains the benefit of the excess amount until its eventual adjustment and that such adjustment does not result in any loss of revenue.

Accordingly, CESTAT set aside the impugned orders against BASF Catalysts, holding that the issue was “no more res integra”, and allowed the appeals with consequential benefits, if any, as per law.

For the Appellant (BASF Catalysts India Pvt. Ltd.): Shri Raghav Rajeev, Advocate

For the Revenue: Smt. G. Krupa, Authorised Representative