Advance or excess payment of service tax and adjustment thereof:

By | November 11, 2013

Advance or excess payment of service tax and adjustment thereof:

There may be some situations where a person who is liable to pay service tax, has paid (to the credit of central government) service tax in excess of what he is liable to pay. The excess payment of service tax may arise on account of :

  • Classification of service under wrong category
  • Mathematical errors in calculating service tax liability
  • Deposit of service tax on estimated basis by the assessee due to delay in receipt of details of payment
  • Any other reason/s

Where an assessee has issued an invoice or received any payment, against a service to be provided but which is not provided him by any reason or amount of invoice is negotiated due to deficient provision of service or any terms then assessee may take the credit of such excess service tax paid by him.

In case where registration is centralized or decentralized

With effect from 01/04/2012, the monetary ceiling of self-adjustment of service tax has been removed so now an assessee can self-adjust excess service tax paid up to any amount.

But the assessee is required to comply with one condition i.e. excess amount paid should not be due to any of the following reason:

  • Interpretation of law
  • Taxability
  • Valuation
  • Applicability of any exemption notification

If there is excess payment of service tax due to above reason i.e. interpretation of law and taxability etc then the assessee is not allowed to self adjust such payment and he has to apply for refund in form ‘R’ under section 11B,within one year from the date of payment of service tax.

Procedure for making an application for refund

Application for refund is to be made in FORM R (in triplicate) within 12 months from the date of making excess payment of service tax.

If on receipt of such application AC/DC of central excise, as the case may be, is satisfied that the whole or any part of service tax paid by the applicant is refundable then he can make order accordingly.

If any amount of service tax ordered to be refunded but not refunded to the applicant within 3 months the applicant is entitled to receipt interest from the expiry of said 3 months @ 6% p.a.

No provision for adjustment of excess service tax paid in case of bad debt as per rule 6(3) of service tax rules, 1994, there are no provisions for self adjustment of excess service tax paid due to bad debt. In those cases service provider shall have to pay service tax from their own pocket if they fail to realize the consideration from their clients because it is not the case of excess payment of service tax.




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