Whether wrong classification of service category required service tax payment again?

[Yatin Bhopi]

Dear Experts

EA2000 audit is going on for our Service tax registration. In year 2012 to 2014 we have made service tax payment in consulting engineering service instead of intellectual property service due to wrong classification of service. Now EA 2000 auditors are insisting to pay us service tax again in intellectual property. We argued that since payment has already been made for same service there will be no service tax payment again for same service.

Please let us know any circular for clarification and case laws in our favor

[CSSANJAY MALHOTRA]

Payment of Service Tax under "WRONG ACCOUNTING CODE" OR "WRONG ASSESSEE CODE" is common to various service providers.

Initially, Important is that the Service Tax should have been deposited against the Service Provided. Classification of Head may vary as varied interpretations exists between assessee and the department. There are many citations of CESTAT wherein the appeals have been allowed where the classification of Service is an issue, but the Service Tax has been deposited.

CBEC has already clarified in its instruction letter (F. No. B2/8/2004-TRU), dated 10-09-2004) that it has to be ensured that there should not be double taxation and Service is taxed only once under the appropriate category.

Refer to CBEC Circular No. 51/13/2002-ST8, dated 07-01-2003 which provides that: “any service (transaction) can be taxed only once, even if it appears / falls in 2 or more services.

Guidelines to be taken care of in future in case one come across with above errors:

It is advisable to inform Jurisdicational Assistant / Deputy Commissioner, in writing along with copy of Service Tax payment Challan and by giving information in a proper inform.

Please go through the mentioned Bhopal Commissionerate Trade Notice FYI.

Trade Notice No. 01/2014-15(ST)  dtd. 05.08.2014

 

[KASTURI SETHI]

Sh..Sanjay Malhotra Ji,

I fully agree with your views. Undoubtedly, wrong accounting code or wrong assessee code cannot cause revenue loss to Central Govt. except upsetting proper accounting system which is also a lapse. In this context, High Court Ahmedbad has passed judgement in favour of assessee.

CX - Duty deposited under wrong ECC number by mistake - Communication by Department to pay duty again under correct code and to seek refund of duty paid under wrong code is quashed - Such mistake cannot result in harsh consequence: HC 2016 (1) TMI 389 - GUJARAT HIGH COURT = Devang Paper Mills Pvt. Ltd. Versus Union of India

 

I intend to point out another aspect on the issue of wrong classification in Service Tax matters. Wrong classification in Service Tax can cause revenue loss. In some services abatement is available and some services are under RCM. Thus by classifying service wrongly, one can avail abatement which is not admissible and one can work under RCM if otherwise not specified. An assessee has to be cautious on classification of any service.Correct classification is always in the interest of the assessee.

[CSSANJAY MALHOTRA]

Respected Sh. Kasturi Sir ji,

Thanks for sharing valuable information & citation. I endorse your following views, wherein one has to be very careful.

Very well stated following by you:

" Wrong classification in Service Tax can cause revenue loss. In some services abatement is available and some services are under RCM. Thus by classifying service wrongly, one can avail abatement which is not admissible and one can work under RCM if otherwise not specified. An assessee has to be cautious on classification of any service.Correct classification is always in the interest of the assessee".

AI Summary

Wrong service classification: tax paid under one category prevents a duplicate service tax demand if reallocation or refund is sought. Mistaken classification of a taxable service does not create a fresh liability where service tax has already been paid for the same transaction; the operative principle is that single taxation applies so the same transaction is not taxed more than once. Taxpayers who discover payment under an incorrect account or assessee code should notify the jurisdictional office with payment challans to seek reallocation or refund rather than making a duplicate payment.