Adjustment of service tax payments can only occur through a formal refund claim under Section 11B, and the claimant must prove that the tax burden has not been passed to third parties.

Per Mr. Ajayan T.V.

TVS Motor Company Ltd, the appellant herein, has assailed the impugned Order-in-Appeal No. 229/2015 (CXA-I) dated 28.10.2015 (impugned order) whereby the appellate authority has rejected the appeal preferred by the appellant challenging the Order in Original No.11/2013(ST) dated 29.07.2013 (OIO) passed by the Adjudicating Authority confirming a service tax demand of Rs.41,97,987/- along with applicable interest thereon.

2. The relevant facts, as emanating from the appeal records, are that the appellant is a manufacturer of motor cycles mopeds etc and is also registered as a service provider for providing various services, such as Consulting Engineer, Market Research Agency, Management Consultant, Architect and Online Information & Database Access and Retrieval. During 2002-03 and 2003-04, from November 2002 to November 2003, the appellant remitted service tax for technical consultancy services provided to the appellant by foreign service providers in India as well as for the service provided to the appellant by such foreign service providers outside India. The amount of tax remitted for the services provided outside India during the said period amounts to Rs.41,19,987/-. The appellant adjusted the said amount towards their service tax liability for the period November 2003 to September 2004 in terms of Rule 6(3)of the Service Tax Rules, 1994 ( STR , 1994).

3. The Department was of the opinion that such suo motu adjustment was not permitted in the appellant’s context and therefore issued a show cause notice dated 28-05-2004 stating that such suo motu adjustment is not permitted in the Rule 6(3) in the present case and that the appellant ought to have filed a refund claim under Section 11B . The SCN together with its addendum issued, alleged that this wrong adjustment of Rs.41,19,897/- tantamount to non-payment of service tax and required the Appellant to show cause as to why the amount so adjusted should not be disallowed. After due process of law, the Adjudicating Authority confirmed the demand along with interest holding that in terms of Rule 6(3) of the STR , 1994 was not permissible and the appellant ought to have filed a refund claim under Section 11B of the Central Excise Act as applicable to service tax matters for claiming the amount. It was held that such wrong adjustment amounted to nonpayment of service tax. Aggrieved, the appellant filed an appeal before the Commissioner of Central excise (Appeals-II). The Appellate Authority, inter-alia, held that the contention of the appellant that, the service tax paid towards the service provided by foreign service providers, for which no service tax was payable, could be adjusted towards service tax liability for the subsequent period in terms of Rule 6(3) of the , 1994, is not sustainable. The Appeal was therefore rejected and hence this Appeal.

4. Shri Raghav Rajeev, Ld. Counsel appearing for the Appellant contended that the Appellant having paid the service tax under mistaken notion of law, is eligible for adjustment of the service tax so paid in terms of Rule 6(3) of the STR , 1994. It is submitted that the impugned order concedes that there is no liability of service tax on the Appellant and the demand is confirmed solely on the ground that the Appellant cannot suo motu adjust the tax which is not payable. The Ld. Counsel argued that when there is no dispute that the tax itself is not payable, the adjustment of the same in the subsequent months is in order and the impugned order merits to be set aside. Reliance was placed on the deci