Service tax adjustment and refund

Every  one of us is already trying our level best to understand the Service Tax provisions, but it is really difficult to cover up all that is written in the Finance Act.

Let’s get started:

Question 1: What all are the cases where adjustment of service tax is possible? What are the possible solutions in hand? What is the time limit to adjust such service tax?

Answer 1: In the following cases the adjustment of service tax is possible:

1. Rule 6(1A) of Service tax rules-Related to advance payment of service Tax

2. Rule 6(3) of Service tax rules-Related to service tax  adjustment where  service not provided but invoice issued or any payment received or invoice is negotiated because of deficient provision of service

3. Rule 6(4A)  read with Rule 6(4B) of Service tax rule-Related to excessive payment of service tax on account  of reasons other than  involving interpretation of law, taxability ,valuation or applicability of any exemption notification.

Let’s discuss each of the above one by one:

Advance payment of service Tax:

What happens: the service providers on his own will pay an amount as advanceservice tax.

Adjustment is possible subject to following conditions:

a. The adjustment can be made in subsequent periods

b. Intimation of such advance payment is made to jurisdictional Superintendent of Central excise within 15 days from date of such payment.Online intimation is possible through Aces website.

c. Indicate the advance payment made and its adjustment in ST-3 return.

   

Services not so provided but invoice issued earlier:

What happens: Service provider has issued an invoice or received payment but could not provide the service wholly or partly or the invoice amount is negotiated due to deficient provision of service or any terms contained in contract. Now as a result excess credit is available with the service provider.

Adjustment possible subject to following conditions:

a. The adjustment can be made in subsequent periods.

b. The service provider should refund the payment or part thereof to the person from whom it is received.

c. The service provider shall issue a credit note for the value of service not so provided but for which invoice already issued.

Excess service tax paid

What happens: Assessee has paid service tax in excess of his service tax liability for a month or quarter.

Adjustment possible subject to following conditions:

a. The adjustment can be made against the liability for the succeeding month or quarter.

b. The service tax so paid in excess is not an account of reasons involving interpretation of law, taxability, valuation or applicability of any exemption notification.

Question 2: Is there any monetary limit on the amount to be adjusted??

Answer: No as per notification No.3/2012 dated 17.03.2012, adjustment of excessive service tax is possible without any monetary limit .Further no intimation to be filed with superintendent in case of adjustment of excess service tax.

Refund Of Service tax

Before we discuss refund under service tax first we should know that as per Section 83 of the Finance Act provisions of various sections of Central Excise Act 1944 are applicable in relation to service tax as they are apply in realtion to duty of excise.Among them  two important section  relevant to service tax refund are Section 11B,11BB

Section 11B

Any person claiming refund of any 19[duty of excise and interest, if any, paid on such duty] may make an application for refund of such 19[duty and interest, if any, paid on such duty] to the 2[Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] before the expiry of 3[one year] 4[from the relevant date 5[6[in such form and manner] as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of 19[duty of excise and interest, if any, paid on such duty]  in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such 19[duty and interest, if any, paid on such duty] had not been passed on by him to any other person:

What we understood From Section 11B

1. Applicable for refund of service tax and interest thereon

2. The Refund application is to filed with the AC/DC of Central Excise

3. Refund to be made within 1 year from the relevant date

4. Refund application to be accompanied by  documents referred to in section 12A

5. Incidence of Service Tax had not been passed to any other person

Question 3: What all are the cases where REFUND of service tax is possible? What are the possible solutions in hand? What is the time limit to file claim for the refund?

Answers: In the following cases refund of service tax is possible:

1. As per Rule 6(4) of Service Tax Rules- On finalisation of  provisional assessment

2. As per Section 74(6) of Finance Act- On rectification of mistake

3. Excess payment of service tax for reasons like wrong interpretation of law, taxability, valuation or applicability of any exemption notification.

4. As per Rule 5 of Cenvat Credit Rules- On input and input services used in manufacture of final products that are exported or providing output services that are exported

5. As per Rule 5B of Cenvat credit Rules-On inputs and input services used by service provider providing   specified services notified under section 68(2) i.e. services charged reverse charge mechanism.

6. Refund of cenvat credit on input services used by unit Located in SEZ or by Developer of SEZ-Notification No.12/2013 read with Section 93(1)

Let us discuss each one by one:

Friends!! If I keep the language as formal you would find in Law/ text books then purpose of my article gets defeated. Rather I would use such language that is easy to apprehend.

So, let us get started:”

Refund of Service Tax paid on Provisional Assessment as per Rule6(4) of The Service Tax Rules

The following questions need to be answered?

Q1.Why there is a need to pay service tax on provisional basis?

Answer 1: When an Assessee is not able to correctly estimate his service tax liability, he shall pay the service tax on a provisional basis after making a request  in writing to the AC of Central Excise or DC of Central excise who shall order the same .The Central Excise Rules(No.2),2001 Rule 7 shall apply except for the bond requirement part.Fill ST-3A on Aces website to fill provisional payment details.

Q2:When is the provisional assessment finalized?

Answer 2: The Provisional assessment has to be finalized by the AC/DC of Central Excise within a period of 6 months from the date  when he order the payment of service tax on provisional basis. The period of 6 months may be extended on discretion on the Commissioner of Excise.

Q3:When and how to apply for service tax refund?

Answer3: If in the final assessment order a refund becomes due to the assessee, then as per Section 11B of the Central Excise Act an application for refund has to be made within 1 year from the date of final assessment thereof as per Explanation B(eb) to Section 11B.Online Refund application can be filled for the same.

Service tax becoming refundable on rectification of mistake under Section 74 (6) of Finance Act

The following questions need to be answered:

Q1. When is a rectification order passed under Section 74(6)?

Answer1: The Central Excise officer on his own motion or on request of assessee or if any mistake is brought to his notice by the Commissioner of Central Excise pass a rectification order within a period of 2 years from the date of original order. If on rectification it is observed by the Central excise Officer that the liability of the assessee is reduced or his refund is increased, the CE officer shall pass a rectification order to make any refund which may be due to such assessee.

Q2. When and how to apply for refund?

Answer2: The refund application is to be filed within a period of 1 year from the date of such rectification order to the AC/DC of Central Excise. {Section 11B read with Explanation B(ec)}

Refund of Excess service tax paid for reasons like wrong interpretation of law, taxability, valuation or applicability of any exemption notification.

The following questions need to be answered:

Q1: What do you mean by service tax paid for reasons like wrong interpretation of law, taxability, valuation or applicability of any exemption notification?

Answer1: There are various cases, some of them are listed below:

a. In case of  KVR construction Vs CCE ,Bangalore, KVR Construction (petitioner) paid service tax on construction of  building or civil structure meant for the use of  organisations or instituitions being established  solely for educational , religious, charitable, health purpose. Whereas there was no service tax liability on the same as such construction was not taxable vide circular no.80/10/2004 dated 17.09.2004. So this is a case of payment of service tax due to misunderstanding of law.

b. In case of  Natraj  And Venkat associates Vs ACST, Natraj  and Venkat associates (petitioner) paid  service tax on export of services  again it was a case of mistake of law.

Q2: Is refund of the same possible. Is there any time limit on the same?

Answer 2: Congratulations!!! Refund of the same is possible. Also there have been various case laws which suggest that refund in such cases is not time –bound as what is paid erroneously was  not required to be paid at all by the law and doesn’t become of the nature of service tax.In support of my answer I would like to give the reference of following case laws:

1. Jyotsana D.Patel Vs Commissioner  of Central excise, Nagpur 2014

2. KVR Construction Vs CCE-2010

3. Natraj and Venkat  Associates  Vs Asstt . Commissioner of Service Tax ,Chennai

4. SGS India (P.) Ltd. v. CST [2011] 31 STT 2006

5. Ranadip Shipping & Transport Co. (P.) Ltd. v. CC 1989 (42) ELT 398

6. Prime Products Private Limited Vs CCE Nashik(2012)

Therefore in case service tax is paid under any misunderstanding of law or any exemption notification, refund of same is allowable and Section 11B of Central Excise Act is not applicable as for period of time limitation.

Refund of Cenvat Credit on input and input services used in manufacture of final products that are exported or providing output services that are exported-Rule 5 of Cenvat Credit Rules

The following questions need to be answered:

Q1. Is refund of cenvat credit of input and input services used is available only for taxable output services that are exported?

Answer1: The Rule 5 of CCR does not provide a condition or pre-requisite that assessee should export taxable services. So refund shall be available for any service exported whether taxable or not.

Case law for reference:

1. Karnataka High Court -mPortaal India Wireless Solutions Private Ltd Vs CST,Bangalore(2012)

2. Bombay High Court-Repro India Ltd Vs Union Of India(2009)

Q2: How to apply for refund and is there a time limit for the same?

Answer2:  The Refund of Cenvat Credit Under Rule 5 of Cenvat Credit rules was earlier  governed by notification no.5/2006 which is now superseded by Notification No.27/2012 dated 18.06.2012.

As per the notification the refund claim is to be filed in form A along with documents required therein. Further the notification says that the claim has to be filed within the time limit specified under Section11B for the purpose of refund.

Q3: What is the relevant date as per section 11B in case of export of services?

Answer 3: The relevant date in this case is drawn from the conclusion derived in the case law of

Madras High Court-CCE Vs GTN Engineering Ltd {2012(28) S.T R. 426 Mad}

So the relevant date is the date on which consideration has been received  where refund is claimed by service provider. The refund claim has to be filed within 1 year from the date of receipt of consideration.

Moreover in Form A copies of Bank Realization Certificates for the export of services is required, this means the refund claim has to be filed only after the export proceeds are received.

Refund of Cenvat credit  on inputs and input services used by service provider providing  specified services notified under section 68(2) i.e. services charged  under reverse charge mechanism -As per Rule 5B of Cenvat Credit Rules

The following questions need to be answered:

Q1: To whom the refund is available under Rule5B of Cenvat Credit Rules?

Answer 1: Service Providers who are providing services notified under section 68(2) i.e. services on which service tax is payable under reverse charge and are unable to utilize the cenvat credit on Inputs and input services .

Such service providers can claim the refund of the same under Rule 5B of CCR w.e.f  01.07.2012 wide notification no.28/2012 dated 20.06.2012.

Q2: Are there some specified services on which refund available under Rule 5B?

Answer 2:Notification No. 12/2014 dated 03.03.2014 specified  the following output services namely:

i. Renting  of motor vehicle designed to carry passengers on non-abated value to, any person who is not engaged in the similar business

ii. Supply of manpower for any purpose or security services; or

iii. Service portion in execution of a works contract

Please note that above are partial reverse charge services.

Q3: Is there some formula for calculation of Unutilized cenvat part?

Answer3:Yes the formula says unutilized cenvat credit on inputs and input services =A-B

Where A=Cenvat credit taken on inputs and input services during the half year (*)partial reverse charge service turnover/total turnover of goods and services during the half year

B=Service tax paid by the service provider for such partial reverse charge services during the half year.

Q4: When the refund claim has to be filed and in what form?

Answer: Notification No.12/2014 reads that the one  refund is to filed  for each halfyear.The refund application in Form A along with specified documents,shall be filed within  one year from the due date of filing of service tax return for the half year.

Please note that the time limits specified in Section 11B does not apply in cases covered by rule 5B of CCR.

Refund is only admissible for CENVAT credit taken on inputs or input services received after the 1st day of July,2012.

Refund of cenvat credit on input services used by unit Located in SEZ or by Developer of SEZ-Notification No.12/2013 read with Section 93(1)

The following questions need to be answered:

Q1:To whom is this Notification applicable and why?

Answer1: The notification is applicable to unit located in Special Economic Zone(unit located in SEZ) or Developer of SEZ .Such units and Developers are allowed refund of service tax paid on   input  services received that are used exclusively for  the authorized operation of the SEZ unit.

Q2:How  to file the refund claim?

Answer2:The  refund claim has to be filed within 1 year from the end of the month in which actual payment of service tax was made by such Developer or SEZ unit to the registered service provider or such extended period as the AC/DC of Central excise shall permit.

Q3:In which form the refund application is to be filed?

Answer3:The refund application is to be filed in Form A-4 with the AC/DC of Central Excise.The SEZ unit or Developer shall submit only one claim of refund under the notification for each quarter.