2019 (5) TMI 1860 - AT - Service Tax

Liability of payment of service tax - time of taxability - on receipt of the service charges from an associated enterprise or the date when it was booked in the books of accounts of the associated enterprise? - the allegation of the department that once the rent amount is credited by the associated enterprises to the accounts of the appellant in their books of accounts the service tax is payable on such amount - HELD THAT - A plain reading of explanation to Rule 6(1) of the Service Tax Rule 1994 it is clear that when there is a transaction of service with an associated enterprise the payment received towards the value of taxable service rendered in such case shall include the amount credited or debited in the books of accounts of a person liable to pay service tax . In the present case the person liable to pay service tax being the appellant therefore on a literal interpretation of the said provision it is crystal clear that the service tax is required to be paid by the Appellant when the amount is received by him in his books of accounts. The impugned order being devoid of merit accordingly set aside - Appeal allowed.

Summary

Issues:
- Interpretation of Rule 6(1) of the Service Tax Rules, 1994 regarding payment of service tax by the appellant.
- Determination of the liability of service tax payment based on receipt of service charges from an associated enterprise or when booked in the books of accounts of the associated enterprise.

Analysis:
The appeal involved a case where the appellant, registered for providing taxable services, had leased premises to a company in which he was a director. The company recorded a payment of service tax for the rent amount, but the appellant did not pay the service tax, claiming it was not received in his books of accounts. The dispute centered on the interpretation of Rule 6(1) of the Service Tax Rules, 1994, specifically the explanation regarding transactions with associated enterprises.

The appellant contended that they followed a mercantile accounting system and paid the service tax when the rent amount was received in their books of accounts. The Revenue alleged that once the associated enterprise credited the rent amount to the appellant's accounts, service tax became payable. Both parties heavily relied on the explanation to Rule 6(1) of the Service Tax Rules, 1994, which clarified that payments received towards taxable services from associated enterprises should include amounts credited in the books of the person liable to pay service tax.

Upon analysis, the Tribunal found that the appellant, as the person liable to pay service tax, was required to pay the tax when the amount was received in their books of accounts. The explanation to Rule 6(1) clearly indicated that payments from associated enterprises should be considered for service tax liability. Therefore, the impugned order was set aside, and the appeal was allowed with consequential relief as per the law. The judgment emphasized the literal interpretation of the provision to determine the service tax liability based on actual receipt in the appellant's accounts.