Cash basis accounting under service tax cannot ordinarily be forced into mercantile treatment; pre-deposit waiver granted.

Under service tax law, an assessee following cash basis of accounting cannot ordinarily be compelled to switch to mercantile basis for tax computation because the Finance Act, 1994 did not impose a statutory accounting-method mandate comparable to section 145 of the Income-tax Act, 1961. The Tribunal noted that, although tax is levied on gross value received or receivable, forcing a change in method may distort accounts and create a risk of double taxation. On that reasoning, waiver of pre-deposit of the balance demand was granted pending appeal.

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Issues: Whether the appellant was entitled to waiver of pre-deposit during pendency of the appeal in view of its contention that, having adopted cash basis of accounting, it could not be compelled to adopt mercantile basis for tax computation.

Analysis: The Tribunal noted that the Finance Act, 1994 did not contain a statutory mandate requiring an assessee to follow a particular method of accounting akin to Section 145 of the Income-tax Act, 1961. It further observed that although levy is on the gross value received or receivable, an assessee who has opted for cash basis cannot ordinarily be compelled to shift to mercantile basis, as such a shift may disturb the accounting position and create a risk of double taxation.

Conclusion: Waiver of pre-deposit of the balance demand was granted during the pendency of the appeal.

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