The Central Board of Indirect Taxes and Customs (CBIC) has published instructions for the payment of service tax by the Ministry of Railways and the Department of Posts via book adjustments under CBIC-240137/20/2022-Service Tax dated March 21, 2023.
According to the release, the board had suggested earlier that the Department of Posts and the Ministry of Railways’ practise of paying service tax through book adjustments was causing inaccurate accounting and reporting because the tax payments couldn’t be reconciled by the CBIC field units.
Additionally, the book adjustment approach made it impossible to conduct audits since it was unable to separate service- and jurisdiction-specific service tax obligations.
Accordingly, the then Member (ST) vide DO letter F.No. 137/08/2013-Service Tax dated April 21, 2014 informed the Department of Posts and Ministry of Railways that the practice of payment of Service tax by way of book adjustment by both Ministries is contrary to the provisions of Finance Act, 1994 and Service Tax Rules and also to the Government Accounting Rules, 1990.
Further, it was requested to adhere to provisions of the Finance Act, 1994 by paying duty/tax electronically through the NSDL portal or ACES portal. The Controller General of Accounts was also requested to render necessary assistance to the Department of Post and Ministry of Railways for aligning their payment procedure accordingly.
Following this, and even before it, some field formations under CBIC made complaints about the aforesaid tax payment method and issued show cause notices requesting duty/tax that would otherwise be paid by way of book adjustment. The Board has also underlined that there are various norms in the industry regarding the acceptance of book adjustment as a legitimate form of payment.
The show cause notices issued to demand the Service Tax/Central Excise duty by some field formations are at different levels of adjudication. A reference in this regard has also been received from the Ministry of Railways in which the demands have been confirmed.
After considering the issues, although the legal status of the method of duty payment has not changed, the Board has taken note of the challenges in going back and correcting the service tax paid through book adjustments and remitting payments through ACES/NSDL because the government accounts for the legacy period have already been completed and laid before Parliament.
The Board has also emphasised that it might not be appropriate to demand the duty that has already been paid through book adjustment again. As a result, the Board has recognised the need to reduce needless litigation where the main point of argument is how the tax or duty should be paid. Furthermore, the problem is one-time only because, under the GST regime, taxes are paid via the Common Portal.
Board directs that in all cases pending adjudication in respect of Department of Posts and Ministry of Railways, where the duty/tax has been demanded only on account of the fact that amount due as tax/ duty has not been paid as per the procedure laid down but by book adjustment, the adjudicating authority may focus on the reconciliation of duty/tax paid by book adjustment.
In view of the aforementioned directions, the Board expects that any legacy cases with outstanding decisions on them can be resolved quickly. Further stated that any issues in carrying out the aforementioned directions may be brought to the Board’s attention.
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