CESTAT, NEW DELHI BENCH: CONSIDERATION DEEMED TO BE RECEIVED ON THE DATE OF ENCASHMENT OF CHEQUE AND NOT ON DATE OF RECEIPT

In its judgment dated Jun 27,2012, CESTAT, NEW DELHI BENCH in case of Sarvashaktiman Traders (P.) Ltd. vs. Commissioner Of Central Excise, Kanpur upheld that consideration deemed to be received on the date of encashment of cheque and not on date of receipt.

Issue Involved

The issue involved in this case is whether tax is to be pay on the receipt of cheque or on encashment of the cheque.

Facts of the case

The appellant was providing business auxiliary services. It was found that in respect of the services rendered during the period April, 2006 to December, 2006, the appellant have not deposited the Service Tax.

The appellants representative, in his statement admitted that bills for the amount of Rs. 54, 76,172/- for the services rendered during the period April, 2006 to December, 2006 stand raised by them in December, 2006. The cheque for the same was received on 4.1.2007 but physically the cheque was deposited in the bank account on 5.2.2007 and as such the Service Tax was to be paid by 5.3.07.

They also submitted that there was no mala fide on their part inasmuch as they were having huge modvat credit for discharge of Service Tax.

The challenge in the present appeal is to imposition of penalty under the provisions of section 76 of the Finance Act, 1994.

Observation of Commissioner (Appeal)

 On appeal against the above order, Commissioner (Appeals) observed that

• there was huge Cenvat credit lying with the appellant
• account payee cheque was only received in January
• account payee cheque was taken into account books,

This reflects that there is no intention on the part of the appellant to evade payment of Service Tax.

He also observed that appellant has nowhere suppressed the value of taxable service from the department.

As such, he set aside the penalty imposed upon section 78. Similarly, he set aside the penalty imposed upon under section 77 of the Finance Act, 1994

However, he upheld the imposition of penalty under section 76 of the Finance Act,   which is the subject-matter of the present appeal.

Judgement

In the present case, though the cheque was received on 4.1.2007, the same was actually deposited in the bank on 5.2.2007 and must have been encashed on a date after that.

As such, it is to be considered as if the consideration for the services was received by the appellant in the month of February itself, thus requiring them to deposit the tax with the 

department in March, 2007.

As such, Commissioner (Appeal) find that there is no delay in depositing the service tax, thus requiring no imposition of penalty upon the appellant.

Accordingly, penalty imposed under section 76 is set aside with consequential relief to the appellant.

Relevant Sections

        

• Section 76 of the Finance Act deals with imposition of penalty on any person, liable to pay Service Tax , fails to pay such tax

• Section 68 requires the assessee to discharge his tax liability by 5th of the next month during which the consideration for the services stand received by the appellant.

Regards

CA. Mona Singhal

Partner

Arpit Gupta & Associates

Chartered Accountants

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