Adjustment against excess Service Tax Paid

Whether the excess payment of service tax can be adjusted against the future liability without any monetary or period limit? For example, whether the excess payment of say Rs. 10 lakhs during the month of March, can be adjusted straightaway against the payment due for April, or in a few installments spread over a few months, say @ Rs. 2 lakhs for 5 months starting April, as the adjustment depends upon arising of the future liability? 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) The adjustment of excess amount paid, under sub-rule (4A), shall be subject to the following conditions, namely:-

(i) excess amount paid is on account of reasons not involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification, (ii) excess amount paid by an assessee registered under sub-rule (2) of rule 4, on account of delayed receipt of details of payments towards taxable services may be adjusted without monetary limit, (iii) in cases other than specified in clause (ii) above, the excess amount paid may be adjusted with a monetary limit of Rupees one lakh rupees for a relevant month or quarter, as the case may be, (iv) the details and reasons for such adjustment shall be intimated to the jurisdictional Superintendent of Central Excise within a period of fifteen days from the date of such adjustment.” 

As per the above sub-rules, the excess payment made can be adjusted only once with a monetary limit of Rs. 1 lakh. The assessee in the case cited above, will have to file a refund claim for Rs. 9 lakh with the Service Tax Department, as Section 83 of the Finance Act, 1994 reads, “83. Application of certain provisions of Act 1 of 1944 – The provisions of the following section of the Central Excise Act, 1944 (1 of 1944), as in force from time to time, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise: - 9C, 9D, 11B, 11BB, 11C, 12 12A, 12B. 12C, 12D, 12E, 14, [14AA]*, 15, 33A, 35F, 35FF to 35-O (both inclusive), 35Q, 36, 36A, 36B, 37A, 37B, 37C, 37D, [38A]* and 40.”

The reasons for the above statement are as follows. 
Notice the phrase, “succeeding month  or quarter, as the case may be”, in sub-rule 4A, as per which, the excess payment can be adjusted against the service tax liability for the succeeding month or quarter, as the case may be. The phrase ‘as the case may be’ is mentioned because the first proviso to sub-rule (1) of rule 6 of the Service Tax Rules, 1994, qualifies the assessee who is an individual or proprietary firm or partnership firm, to make quarterly payments of service tax; and the others have to pay the service tax on monthly basis. Secondly, clause (iii) of sub-rule (4B) of rule 6 ibid specifies adjustment of excess payment with a monetary limit of Rs. 1 lakh depending upon the category of payment, either on monthly or quarterly basis. 

So, when one reads the two phrases together, ‘succeeding month or quarter’ of sub-rule 4A and ‘Rupees one lakh rupees for a relevant month or quarter’ of sub-rule 4B, one gets the impression that what is envisaged is adjustment of Rs. 1 lakh only for the subsequent   period of payment, either monthly or quarterly, and that too once only. And the other conditions imposed in sub-rule (4B) ibid, the excess amount adjustable is not ‘on account of reasons involving interpretation of law, taxability, classification, valuation or applicability of any exemption notification’. The amounts arising out of the above issues are those pending in disputes in various higher fora, and the deposits made can be adjusted straightaway, without any monetary limit, or in the alternative a refund claim as mentioned above can be sought for from the department. 

Similarly, in the case of the assessees who are registered under the centralized billing or accounting system under sub-rule (2) of rule 4 ibid, there is no monetary limit for adjustment of excess payment of service tax for the subsequent period. Therefore, the excess payment of service tax simpliciter alone, can be adjusted for the next month or quarter of payment, to the extent of Rs. 1 lakh only once, and the balance, if any, should be sought for by way of a refund claim from the department. 

Of course, this adjustment is also qualified with the stipulation of the procedure to intimate the Superintendent concerned within 15 days of such adjustment. 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)...