SERVICE TAX ON ROYALTY

[RAM SHARMA]

DEAR EXPERTS,

I HAVE TWO QUERIES.

1. SHOULD WE PAY SERVICE TAX ON ROYALTY PROVISION BASIS OR PAYMENT BASIS UNDER REVERSE CHARGE MACHENISM.

2. WE HAVE PAID SERVICE TAX ON ROYALTY THROUGH CENVAT CREDIT BUT UNDER REVERSE CHARGE MACHENISM SERVICE TAX DEPARTMENT RAISE A DEMAND THAT WE SHOULD PAY SERVICE TAX ALONWITH INTEREST FROM 2007. WE ARE READY TO PAY SERVICE TAX CASH BUT WHY WE DO PAY INTEREST.ULTIMATELY WE HAVE PAID SERVICE TAX WHEATHER IT IS CENVAT CREDIT BUT NOT CASH.

PLEASE ADVICE HOW CAN WE SAVE OUR INTEREST.

THANKS

AI Summary

Reverse charge on royalty requires cash payment, CENVAT not permitted and interest may follow, but some precedents limit interest.
Where royalty services are taxable under Intellectual Property Services and tax is leviable on a reverse charge basis, the recipient must pay service tax in cash and cannot utilise CENVAT credit; paying by CENVAT instead breaches the reverse charge rule and ordinarily attracts interest, though some appellate decisions have excused interest where the payer later remedied the payment and reversed CENVAT credit.