Hon’ble Delhi High Court (DHC) has quashed the circulars Circular No. 158/9/2012-ST dated 08.05.2012 and Circular No.154/5/2012-ST dated 28.03.2012, which required assesses to pay 2% differential service tax on services provided by chartered accountants and other specified professionals prior to 01.04.2012 but in respect of which payments are received after 01.04.2012.
Here, we are discussing how to avail the benefit of judgment passed by DHC.
BACKGROUND: Prior to 01/04/2012, rate of service tax was 10.3%. However, with effect from 01/04/2012, it was increased to 12.36%.
Further w. e. f. 01/07/2011,Point of Taxation Rules, 2011(Updated February 2013) was compulsorily made applicable which requires assessee to pay service tax on accrual basis. However, Rule 7 of said rules (as applicable till 31.03.2012) provides exception for following categories of taxable services when provided by (i) (Individuals (ii) Proprietary Firms or (iii) Partnership Firm:
(i) Architect’s Services
(ii) Interior Decorator’s Services
(iii) Practicing Chartered Accountant’s Services
(iv) Practicing Cost Accountant’s Services
(v) Practicing Company Secretary’s Services
(vi) Scientific or Technical Consultancy Services
(vii)Legal Consultancy Services
(viii) Consulting Engineer's Services
As per said rule, said specified professionals were required to pay service tax on receipt basis.
Issue: Circular 158 clarified that in respect of the said category of professionals, service tax shall be payable at the rate 12.36% in respect of realization on or after 01/04/2012 against the service provided and invoice issued prior to 01/04/2012.
As per circular specified professional were required to pay service tax at increased rate in respect of unrealized bills as on 31/03/2012.
Relief by Delhi High Court: Delhi High Court quashed the Circular No. 158/9/2012-ST dated 08.05.2012 and Circular No.154/5/2012-ST dated 28.03.2012 which required the said specified professionals to pay service tax in respect of service provided and invoice raised prior to 31/03/2012, but payment received on or after 01/04/2012.
How to claim Benefit: There can be three possible situations. Action to be taken in each situation is discussed as under:
Situation-I: Assessee who has paid the service tax at 10.3% (not @ 12.36%) in respect of unrealized bills as on 31/03/2012:
In our mails with subject line “How to Avail Benefit of Old Rate of Service Tax (Tax Analysis # 4)” and “Clarification on Date of Payment and Provision of services (Tax Analysis # 4 cont...)” dated 29.03.2012 and 30.03.2012 respectively, we explained that old rate (i.e. 10.3%) shall be applicable in respect of unrealized invoices as on 31.03.2012.
Assessee who has not paid service tax at increased rate of service tax in respect of unrealized bills as on 31/03/2012, as per Delhi High court judgement also, they have correctly paid the service tax.
Situation-II: Assessee who has recovered the additional service tax from clients (by issuing supplementary invoices) and deposited to the credit of Central Government:
Since assessee has recovered the additional/increased service tax, assessee was required to pay the same to the credit of central government; therefore, no adjustment/refund can be allowed.
Further it is not advisable to follow the complicated procedure of refunding the amount to clients and then claim refund of same from department. However, if the amount is significant, refund claim can be filed by the person who has born the burden of service tax.
Situation-III: Assesses who have not received additional service tax but paid from their own pocket.
In such case following options are available:-
(a) 90 days period for revision of return has not expired and assessee has utilized CENVAT credit for discharging part (or full) service tax liability:-
In this case, assessee may revise the return and carry forward the CENVAT credit instead of utilizing the same.
For example: For the month of April 2012, service tax liability of assessee was Rs. 100/-. He has paid Rs. 80/- by cash and Rs. 20/- by utilization of CENVAT credit. Because of said Delhi HC judgement, his liability reduced to Rs. 95/-. In such case he will show payment of Rs. 80/- by cash and Rs. 15/- by CENVAT credit, and carry forward Rs. 5/- CENVAT credit.
(b) Return has not been filed (i.e. in case return for the period April 2012 to June 2012 has not been filed or for the period July 2012 onwards for which return is to be filed): same as above.
(c) Period of 90 days for filling the return for the period April 2012 to June 2012 has expired or utilization of CENVAT is less than the additional liability paid from own pocket:
Assessee can file refund application in Form ‘R’ within one year from the date of payment.