By TIOL News Service

MUMBAI, JULY 17, 2016: THE appellants received certain services from their associate company located overseas. The appellants made the requisite debit/credit entries in their accounts. The appellants paid Service Tax when the actual payment was made to the service provider.

It is the case of the Revenue that Service Tax should have been paid when the debit/credit entry was made in their account.

This, the Revenue contends is in view of Rule 6 of STR, 1994 which at the material time, contained the following explanation:

"Explanation - For the removal of doubts, it is hereby declared that where the transaction of taxable service is with any associated enterprise, any payment received towards the value of taxable service, in such case shall include -

+ any amount credited to any account in the books of account of a person liable to pay Service Tax

+ any amount debited to any account, in the books of account of a person liable to pay Service Tax."

Based on the above, interest is demanded &penalty is imposed by invoking extended period of limitation.

Before the CESTAT, the appellant argued that it is a revenue neutral situation as they were entitled to take credit of Service Tax paid and, therefore, there could not have been any intention to evade payment of duty/tax. Further, explanation in Rule 6 had nothing to do with due date of payment of duty. Reliance is placed on the decision in Intervalve (I) Ltd. - 2015-TIOL-1095-CESTAT-MUM.

The AR reiterated the findings of the lower authority.

The Bench observed -

"4. ... I find that the issue is revenue neutral, insofar as the Service Tax paid by the appellant is available as credit to them. The issue is of interpretation. In these circumstances, no motives can be alleged and, therefore, extended period of limitation cannot be invoked…."

The appeal was allowed.

(See 2016-TIOL-1756-CESTAT-MUM)