SERVICE TAX ON ROYALTY, Service Tax

[RAM NAUDIYAL]

DEAR EXPERTS,

I HAVE TWO QUERIES.

1. SHOULD WE PAY SERVICE TAX ON ROYALTY PROVISION BASIS OR PAYMENT BASIS UNDER REVERSE CHARGE MACHENISM.

2. WE HAVE PAID SERVICE TAX ON ROYALTY THROUGH CENVAT CREDIT BUT UNDER REVERSE CHARGE MACHENISM SERVICE TAX DEPARTMENT RAISE A DEMAND THAT WE SHOULD PAY SERVICE TAX ALONWITH INTEREST FROM 2007. WE ARE READY TO PAY SERVICE TAX CASH BUT WHY WE DO PAY INTEREST.ULTIMATELY WE HAVE PAID SERVICE TAX WHEATHER IT IS CENVAT CREDIT BUT NOT CASH.

PLEASE ADVICE HOW CAN WE SAVE OUR INTEREST.

THANKS

Posts / Replies

[Pradeep Khatri]

Payment of Royalty is liable to taxed under Intellectual Property Services only from 10-09-2004, M/s Switzer Instruments Ltd. Vs. CST Chennai, (2009 (9) TMI 98 - CESTAT, CHENNAI)= 2010 - TIOL-68- CESTAT -MAD

With effect from 16-06-2005, Taxable Services means any service provided or to be provided to any person, by the holder of IPR, in relation to Intellectual  Property Services - Section 65 (105) (zzr).

Under reverse charge mode, service tax is required to paid in cash.  In your case it has been paid through CENVAT credit, which is not allowed.  Hence, you are liable to pay the interest at the applicable rate.

[Pradeep Khatri]

I have found some good judgments which are in your favour.  Kindly go through it and evaluate that how far it can help you out:-

No interest if initially duty paid through CENVAT credit and later by cash - In CCE V Banco Products (2011) 33 STT 363 =15 taxmann.com 9 ( CESTAT SMB), assessee first paid duty through CENVAT credit.  Later, on being informed that duty should be paid by case, he paid by case and reversed CENVAT credit.  It was held no interest is paybale as the action was only to rectify procedural irregularity - relying on CCE v. Vulcan Gears  (2009 (10) TMI 8 - CESTAT AHMEDABAD)= ( 2009) 23 STT 472 (CESTAT).

[RAM NAUDIYAL]

If I paid Service Tax on Royalty along with interest then how can we recover my cenvat amount which is already utilised to pay service tax on Royalty. 

[JAMES PG]

A s per the provisions contained in the  Rule 5 of Taxation of Services (provided from Outside India) and received in India, `which was in force till 30.06.12, taxable services provided from outside India and received in India shall not be treated as outout service for the purpose of Cenvat utilisation. Similary as per the new definition in  CCR of output service vide Rule 2(l)p, output service shall not include a service where the whole of service tax is liable to be paid by the receipient of service. Hence payment of reverse charge in Cenvat is barred by Rule and it is very difficult to win the case in the normal course of adjudication.