The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that the adjustment under Rule 6(4A) of Service Tax Rules is permissible if made in the succeeding month or quarter.
The Appellants, Larsen & Toubro Limited, re-calculated the Service Tax liability considering 25% of the entire advance amount which came to Rs. 20.125 Crores (inclusive of service tax) to be attributable towards ‘Service Portion’. The service tax worked out to be Rs. 1,87,93,065/- on this value of Rs.20.125 crore. After They paid the balance Service Tax of Rs. 22, 10,065/- after adjusting tax paid of Rs. 1,65,83,000/-.
In an enquiry made by the Revenue, they considered the said adjustment of Rs. 1,87,93,063 to be inadmissible under the Rules and a show cause notice dated 19.02.2013, proposing demand against such irregular adjustment of Rs. 1,87,93,063/- and further considering whole of IInd instalment of Rs. 40.25 crore discussed above towards supply of services and demanding service tax of Rs. 4,14,57,500/- @10.3% on the same instead of Rs. 22,10,065/- paid by the assessee.
In adjudication proceedings, the Commissioner set aside the demand of Rs. 4,14,57,500/- stated above but confirmed the demand of Rs. 1,87,93,063/-, besides imposing penalty and demanding interest thereon, holding that the contention of the assessee that whole of the advance payment of Rs. 80.50 Crores was towards supply of material and goods only could not be accepted which was only an afterthought and they had rightly discharged the service tax of Rs. 1,87,93,063/- and shown in their returns.
The Commissioner further held that the adjustment was even impermissible under Rule 6(4A) of the Service Tax Rules, as in terms of the said Rule, any adjustment if it is made had to be made in the “succeeding month or quarter as the case may be thus such adjustment could be made in the month of Nov. 2010 and April 2011 and the adjustment made in Jan 2012 was out of the purview of the realms of Rule 4A, and hence unacceptable.
Authorised representative on behalf of the Revenue has vehemently argued that the demand has correctly been confirmed against the appellant as the tax was duly payable on the advances and provisions of adjustment under Rule 6(4A) of the Service Tax Rules were not applicable in the present case as the conditions therein had not been satisfied.
The Two-Member Bench of the Tribunal comprising (Ramesh Nair) Member (Judicial) and (C L Mahar) Member (Technical) observed that “We hold that the demand of Rs. 1,87,93,063/- is not sustainable against the appellant and the same is hereby quashed with consequential relief to the appellant. Thus, there was in reality no short payment by the appellant. We further find that the findings of the Commissioner, that the appellant could not have adjusted the excess tax paid on 4.11.2010/31.03.2011 beyond the month of Nov 2010/April 2011 is also not sustainable.”
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