Excess service tax may be adjusted against liabilities arising in subsequent months or quarters.

The appellant, a manufacturer of catalysts and a registered provider of taxable services, received Business Support Services and Intellectual Property Services from overseas associated enterprises, on which service tax was payable under the Reverse Charge Mechanism.

During audit, the Department alleged that the appellant had adjusted advance/excess service tax payments made in earlier periods against liabilities arising in subsequent months or quarters, contrary to Rules 6(1A) and 6(4A) of the Service Tax Rules, 1994.

For the period 2012–13 to September 2015, the Commissioner confirmed the proposed demand, interest and penalties by Order-in-Original No. 01/2017-ST dated 9 February 2017.

For the subsequent period from October 2015 to June 2017, the demand was confirmed by Order-in-Original No. 02/2018-ST dated 11 April 2018, and the Commissioner (Appeals) upheld it by Order-in-Appeal No. 507/2018 dated 25 October 2018.

The appellant challenged both orders before the CESTAT.

Whether the appellant was legally entitled to utilise excess or advance service tax paid in an earlier month or quarter towards service tax liability arising in subsequent months or quarters under Rule 6(4A) of the Service Tax Rules, 1994?

Whether the demands, interest and penalties imposed on the basis that such adjustments were permissible only in the immediately succeeding month or quarter were sustainable?

Rule 6(4A) of the Service Tax Rules, 1994 permits an assessee who has paid an amount in excess of the service tax liability for a month or quarter to adjust the excess against service tax liability for the “succeeding month or quarter”; the rule does not expressly restrict adjustment to the immediately succeeding period.

Rules 6(1A) and 6(4B) govern adjustment and related procedural requirements, while Rule 4(1)(d) concerns service tax payable under the Reverse Charge Mechanism.

The Tribunal followed South India Aluminium Company v. CGST & Central Excise, Chennai, Final Order No. 40926/2023, which relied on Arun Excello Foundation and held that Rule 6(4A) permits adjustment against a later succeeding month or quarter, particularly where denial would cause revenue enrichment without revenue loss.

The Tribunal distinguished JCT Electronics Ltd. v. CCE & ST, Vadodara, as a decision of a Single Member Bench, and noted that Pr. Commissioner of GST & Central Excise, Raipur v. Spectrum Coal & Power Ltd. had only remanded the matter for fresh consideration.

The Tribunal found that the appellant had initially paid service tax on provisions made for services received from overseas associated enterprises and subsequently again reflected the invoice value in its ST-3 returns when the invoices were received, resulting in an adjustment of the earlier payment against the later accounting of the liability.

Even assuming that Rule 6(4A) applied, the Tribunal held that the expression “succeeding month or quarter” did not mean only the immediately succeeding month or quarter because the word “immediate” was absent from the rule.

The provision was intended to permit utilisation of excess tax against a liability accruing later and to avoid unnecessary refund proceedings.

Since the Revenue already possessed the excess amount and no revenue loss resulted from the adjustment, the Department’s restrictive interpretation was rejected.

Following the Division Bench decision in South India Aluminium Company, the Tribunal held that the issue was no longer res integra.

It held that adjustment of excess or advance service tax paid in an earlier period against liability arising in subsequent months or quarters was permissible under Rule 6(4A) of the Service Tax Rules, 1994, and was not confined to the immediately succeeding month or quarter.

The impugned orders confirming the demands, interest and penalties were set aside, and both appeals were allowed with consequential relief, if any, in accordance with law.