Payment of service in wrong category

[sunil mehta]

A co-op bank gets commission from Local Electricity company for collection of light bills from consumers of that electricity company.That co-op bank failed to obtain registration under 'BAS ' category and continued to pay stax due on commission income under 'Banking & Finance services' till sept'08.Thereafter asseessee got BAS services added to Form  ST-2 in oct'08.All dues under BAS have been paid regularly from oct'08 till date. This happened because asseessee was genuinely under impression that s.tax was to be paid under Banking services Query:-1)What are the consequences of not paying the s.tax collected in correct category (BAS) but in other category.(Banking services) 2)Whether suptd. can ask the service provider to pay full s.tax from beginning under BAS services with interest and penalty eventhough s.tax was paid in 'Banking services till sept.'08? 3)Similarly whether suptd. can levy penalty for non filing of ST-3 return under BAS till sept.'08? 4)Any case law in respect of matter similar to above case?

[Markesh Antony]

This case is of procedural lapse. There is no evasion of service tax, therefore, department can not demand any service tax twice even if the same has been paid in the wrong head. Further, where ST-3 return has been filed, though mentioning the details of one service only, no penalty can be levied for non filing of return. Yes he can impose minor penalty for procedural contravention of any other provisions of Finance Act, 1994.

AI Summary

Service tax misclassification: payment under an incorrect category bars double tax demand, though procedural penalties may apply. Payment of service tax under an incorrect service category due to a genuine belief in classification does not constitute evasion and prevents the department from demanding the same tax twice; tax paid satisfies the liability to that extent. Where a return (ST-3) has been filed disclosing receipts under one service head, penalty for non filing of a separate return for the other category cannot be levied, although a minor penalty for procedural contraventions of the Finance Act, 1994 may be imposed.