ST - There is no difference between provisional entry & final entry - Service tax became due in accordance with date of provisional entries made first time by respondent in their books - Therefore, there is a delay in payment of ST which attracts interest: CESTAT
By TIOL News Service
MUMBAI, MAR 15, 2016: THIS is a Revenue appeal.
The factsare that the respondents are engaged in providing services of "Banking and other Financial Services" falls under Section 65(12) of Chapter V of the Finance Act, 1994.
During the course of audit, it was revealed that the respondent acts as an Investment Manager to M/s. Deutsche Mutual Fund and paid service tax on the fees received from M/s. Deutsche Mutual Fund. The financial accounts revealed that the investment fees were received from M/s. Deutsche Mutual Fund as related party transaction and M/s. Deutsche Bank AG is the ultimate holding Company. The said investment fees were credited/paid to the account of respondent not later than the last day of the respective months. The respondent had shown the amount as received in the following month.
In the SCN, it was alleged that though these were ‘Associate Enterprises' transactions the respondent had not accounted for the fees in the respective months itself in their ST-3 Returns as per provisions of Section 67 of the Act and Rule 6(2)(a) of STR as amended w.e.f. 10.5.2008.
Consequently, there was a delay in payment of service tax by one month from May 2008 onwards on which interest was payable.
The adjudicating authority confirmed the demand of interest and imposed the penalties under Section 76 and 77 of the FA, 1994.
The Commissioner (Appeals) held that though a provisional entry was made, the final entry passed in the subsequent month was the amount for which invoice was raised and the payment was received from DMF which should be considered as taxable event. It was also held that the respondent cannot be considered as ‘Associate Enterprises' as they did not satisfy the criteria of the ‘Associate Enterprises' under Section 92A of the Income Tax Act, 1961 along with Chapter X of the Income Tax Act. Therefore, the definition of ‘gross amount charged' as provided in the Explanation to Section 67 of the Finance Act, 1994 does not come into play.
As mentioned, Revenue is in appeal before the CESTAT.
The AR submitted that the fact that the respondent is an Associate Enterprises has not been disputed during the adjudication proceeding and hence the lower appellate authority could not have entertained the same &held otherwise. Furthermore, Section 67 did not make any distinction between the provisional entry & final entry and, therefore, as there is a delay in payment of service tax, interest is rightly demanded and so are imposition of penalties.
The respondent submitted that they rightly do not fall under the definition of “associate enterprises” as per the definition provided u/s 92A of the Income Tax Act, 1961. Moreover, the entries of transaction made during the month are provisional and only for the purpose of management information system & the final entries are made in the next month and according to which the invoices were raised. Therefore, there is no significance of provisional entries and the same cannot be considered for point of taxation.
The Bench observed -
(i) Whether the respondent are associate enterprises in terms of Section 92A of the Income Tax Act, 1961.
++ On the basis of definition (provided in Section 92A of the Income Tax Act), it is observed that the respondent is an associate enterprises of the service recipient i.e. M/s. M/s. Deutsche Mutual Fund. The respondent is managing and controlling the mutual fund. Therefore, it is clearly covered under the definition of associate enterprises. Moreover it is observed that the entire show cause notice is based on the aspect that the respondent is associate enterprises. However, the respondent have not raised any objection before the adjudicating authority regarding their status of associate enterprises. The Ld. Commissioner while holding that the respondent is not on ‘associate enterprises' not given any finding. Therefore, I am of the considered view that the respondent is an ‘associate enterprises' of M/s. Deutsche Mutual Fund as the ultimate holding company.
(ii) Whether the point of taxation should be decided on the date of provisional entries of the transaction in the books of account or on the date of final entry and invoice made by the respondent.
++ As per the Explanation (c) of Section 67 the term gross amount charged amongst other transaction includes any form of payment by issue of credit notes or debit notes and book adjustments and any amount credit or debited as the case may be to any account whether called ‘suspense account' or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associate enterprise. This explanation has wide scope and it applies to even those transactions which are booked under ‘suspense account' or even any other name. In the present case, the so-called provisional entries were made with a specific description of transaction. The explanation does not make any distinction between the provisional entries and the final entries made subsequently. As per the plain reading of the explanation the moment first time any entry is made irrespective whether it is provisional or final entry the same will be covered under the debit entries as specified under the explanation. Therefore, there is no scope in the said explanation to give different treatment to the provisional entries or final entry. On the identical issue the Division Bench of this Tribunal in the case of General Motors(I) Pvt. Ltd. vs. Commissioner of C. Ex. Pune 2015-TIOL-1993-CESTAT-MUM categorically held that there is no difference between the provisional entry or final entry.
++ The service tax became due in accordance with the date of provisional entries made first time by the respondent in their books of account. Therefore, there is a delay in payment of service tax which attracts interest hence the demand of interest is sustainable.
Penalty:
++ The show cause notice was issued for demand of interest and there is no dispute regarding the payment of service tax. Moreover, the issue involved is in the nature of interpretation of valuation section. The penal provisions are invoked only for non-payment or short payment of service tax. In the present case, it is only for demand of interest. Penalties under Section 76 & 77 are not imposable.
Revenue's appeal was partly allowed.
(See 2016-TIOL-610-CESTAT-MUM)
