Excess service tax during audit

[DEVAL Vyas]

Hello Sir,

I have a franchisee of a medical company in India and get commission for business we give to them. We maintain a team as per company requirements. We started business in January 2015. I don't have any other source of income.

My file is under service tax audit for the period of January 2015 till June 2017.

During the audit it was found that we had paid 28000 less service tax during the last quarter that is AMJ 2017 and 1, 20, 000 more service tax during April 2016 till March 2017.

On analyzing we realized two errors:

1. First error happened because of different accounting standard between us and my Franchisor and this resulted in my over declaring my turnover and hence paying double service tax in certain months in Fy 2016 - 17. We did not Realize this until the audit period.

On explaining him this error he said that the turnover was declared by us only and how will we prove that turnover declared by us is wrong and that we don't have any other source of income. He also said he will even ask income tax department to open my file for audit. I don't have any other sources of income and all income I get is though cheque as official commission in only one bank account that I have in name of my proprietary firm.

2. Second error happened in AMJ 2017 which was last quarter for ST. Here instead of paying ST we paid the amount in GST. Here also in FY 2017 - 18 we have paid over all more ST+ GST combined but less in heading of ST.

So over all out intentions were not to cheat on service tax / GST but due to oversight we have have ended up paying more tax.

Now department is saying that since we did not claim refund of excess ST of 1.2 lacs within one year we have lost our right to refund and we have it forget that amount plus we have to pay penalties and interest on less ST which amounts to ₹ 70000 odd.

Can we appeal against this and is it advisable? Do we need to go till tribunal for this?

Thanks and Regards

[KASTURI SETHI]

The department's view is correct. For filing an appeal, you need speaking order. There is a proper procedure. For further details, read Q.No.5 of FAQs issued on 15.12.18 by CBI & C.

[DEVAL Vyas]

Thank you very much for your guidance sir... So what essentially it means that if by mistake I have paid more tax it's not refundable but shortage of tax is penalized all within the same audit period..

Does it not go against my rights of fair trial and assessment? My main concern is on service tax and not GST part... I am OK with little bit more paid as GST as it's not that big an amount... But excess service tax is a big amount which department is refusing to acknowledge saying that time period to claim refund is over.

Now I know that time period is over but then isn't the audit period from jan 2015 till june 2017? How can they say excess payment is also ours and plus I have to bear penalty on shortage all withing same audit period?

Is there no way out?

[KASTURI SETHI]

Excess payment of Service Tax and short payment of Service Tax have different prescribed procedures. Excess payment of ST could be adjusted on your own during Service Tax before 30.6.17 as per procedure laid down under Rule 6 (4A) of Service Tax Rules, 1994. It was possible in the next ST-3 return monthly/quarterly. Now no option.

Now you will have to pay ST (short paid) along with interest and penalty is also imposable under Section 76 or Section 78 of the Finance Act, 1994 as amended.

This is correct legal status.

[DEVAL Vyas]

OK sir... Thank you very much for your help.

AI Summary

Franchisee Disputes Penalties and Expired Refund Claim Period After Service Tax Audit Reveals Payment Errors A franchisee of a medical company in India faced a service tax audit for the period January 2015 to June 2017. During the audit, it was discovered they had underpaid service tax by 28,000 in the last quarter of 2017 and overpaid by 120,000 from April 2016 to March 2017 due to accounting errors. The department stated that the refund claim period for the overpaid amount had expired, and penalties and interest were due on the underpaid amount. The franchisee questioned the fairness of this decision and sought advice on appealing the penalties.