REFUND OR ADJUSTMENT OF SERVICE TAX ??

[abbas mukhi]

Dear Experts,

We have raised invoice to one party during the current year with service tax @ 12.36 and deposit the service tax on due basis.However we not received any amount from party.

Party was not agree with our claims and made court case.Now as per settlement we have waived off 50% of our dues and party remitted 50% amount with service tax @14.5%

We have already deposited 12.36 % Service Tax on our 100% dues

We received 50% of our dues @ 14.5%

How should we adjust/refund Service Tax...

Thanks....

[KASTURI SETHI]

Sh.Abbas Mukhi Ji,

In such situation better option is to apply for refund of ST to the jurisdictional Assistant Commissioner/Dy. Commissioner, Division Office. Self adjustment is prone to risk of inviting SCN for recovery along with interest and imposition of penalty inasmuch as ST is payable on billed amount as per ST law. As per definition of 'Service', it must be provided to another person for consideration. Here the element of 'consideration' is partly absent. You will have to produce documentary evidence in support of your submission/refund claim that billed amount has not been received and will not be received.The following docs will be relevant:

1. Copy of contract

2. Copy of invoice

3. Court order

4. Settlement proof etc.

Otherwise also when valuation dispute or other technicality is involved, self adjustment is not allowed. Rule 6 (4B) of Service Tax Rules is extracted below:-

[(4B) The adjustment of excess amount paid, under sub-rule (4A), shall be subject to the condition that the excess amount paid is on account of reasons not involving interpretation of law, taxability, [* * *], valuation or applicability of any exemption notification.]

[Akash Deep]

Dear Sir,

what i understood from the facts narrated by you is that you have paid services tax (suppose value of services provided by you was ₹ 100) on ₹ 100 @ of 12.36%. later on because of some reasons service recipient decided to not you pay you full ₹ 100 along with service tax @ 12.36%. So after settlement he decided you pay you 50% of the value of service provided by you plus service tax on the rate of 14.5%. to me is appears a case of renegotiating of value of service covered under Rule 6(3) of the ST Rules, 1994. as per Rule 6(3) you can take the credit of tax paid in excess by you. Let me explain this in detail.

Suppose your provided services of worth ₹ 100 and add service tax of ₹ 12.36 % and thus raise an invoice of total 112.36. you recipient found some deficiency in serivce of for some breach of terms of contract and thus decided not you pay you full value of service. after settlement you and your service receiver reach on consensus that service receiver will pay 50% of the value of service because as per his understanding service provided by you worth only 50% of the value as determined by you. in other words he will pay you Rs. plus 12.36% of ₹ 50. it becomes around 56.18. now you have already paid tax of ₹ 12.36 where as you have inactual provided services of worth 50 only and hence tax payable is rs. 6.18 only. what will happen you rs. 6.18 which you have already paid in excess. this 6.18 Rs. which you have already paid in excess, as per Rule 6(3) assessee can take the credit of such excess service tax paid.

i suppose in your case, service provider has wrongly paid you tax at the rate f 14.5% as service tax would have been paid at the rate of 12.36% only. The rate applicable will be the one prevailing at the time of provision of service and not the rate prevailing at the time of payment.

Rule 6(3) and 6(4A) are distinct. Rule 4A allows for adjustment of service tax paid in excess towards succedding month or quarter tax liability however such adjustment is possible only in a situation where excess service tax was paid not because of reasons mentioned under Rue 6(4B).

Rule 6(3) talks about taking credit of the excess service tax paid. it operate in a situation where service has not been provided fully or partially or value of service has been renegotiated.

kindly choose the option available under Rule 6(3) or Ruel 6(4A) read with Rule 4(B) depending on your case. my feeling is that your case is of the nature falling under Rule 6(3). here i am just relying on my experience while dealing with companies.

Akash Deep

[KASTURI SETHI]

Sh.Abbas Mukhi Ji,

Sh.Akash Deep, an Expert has also not ruled out the possibility of applicability of Rule 4(B) Now it is up to you how u feel safe. Refund application is 100% safe. No risk of audit objection. No risk of SCN. No risk of penalty. It is crystal clear that in both ways refund of excess amount of ST paid is your substantive right.Only question of feeling safe i.e. avoiding litigation.

[Rajagopalan Ranganathan]

Sir,

I agree with the views of Shri. Katuri Sethi Sir. You had valued the service provided by you as ₹ 100/-. But you customer disputed the same and on negotiation /court decision you have revised the value as ₹ 50/-. Therefore it is a case of valuation. Therefore it is better to file refund claim for service tax paid in excess.

[KASTURI SETHI]

Sh.Rajagopalan Ranganathan Ji,

Thank you, Sir. Valuation issue is the basis of my reply. Otherwise also why to take risk of inviting litigation. Litigation means tension, wastage of time, money and energy and that too unnecessarily. Which is avoidable, should be avoided by the assessee in his own interest.

[Mahir S]

Sir,

Further to add that Refund is applicable provided it is filed within time limit and question of unjust enrichment is not applicable therein.

AI Summary

Refund of service tax vs self-adjustment: refund avoids assessment risk where consideration and valuation are disputed. Where a supplier deposited tax on an invoiced amount but later accepts reduced consideration, the choice is between claiming a refund of excess tax or taking an adjustment/credit against future liabilities; self-adjustment risks assessment, interest and penalty when excess payment arises from valuation or taxability disputes, whereas a refund claim-supported by contract, invoice, court order and settlement proof-is the safer route and subject to time limits and unjust enrichment rules.