Service tax is charged on the value of consideration received, so it may happen at times that payment is received for service to be provided and later it is not provided either partially or wholly. There can be another scenario where the service provider commits any arithmetical error while calculating the tax and ends up paying excess amount then what is required to be paid.  In both the case, the assessee has two alternatives:

a)      He may adjust the excess payment against his future tax liability (Self Adjustment) or

b)      He may claim refund for the payment

But follow up with the department for getting refunds involves delays and the revenue authorities creates a lot of hurdles before allowing the refunds. So Self – Adjustment is a preferred way for adjustment of excess tax paid.

Allowability of Self – Adjustment

Self – Adjustment is possible if the assessee has paid, any excess amount received by him towards the tax liability for a month or quarter, to the credit of Central Government then he may adjust the excess amount against the tax liability of succeeding month or quarter, provided the excess amount does not exceed the tax liability of the succeeding month or quarter. Thus if a person has tax of Rs. 5lacs in excess in the current year or quarter, and the tax liability for next year or quarter is only Rs.1lac, then he can adjust Rs.1 lac and the balance is to be claimed as refund.

Self – adjustment is permissible only in case:

a)      Adjustment is possible if there has been any arithmetical error, when tax is to be paid by 31^st March and calculation of the exact amount is impossible;

b)      In case an assessee is having Centralized Registration and there has been delay in receiving details of payments, without monetary limit;

c)      For assessee other than Centralized Registration, the excess amount can be adjusted to a maximum of Rs.200000 for a month or quarter;

d)     The details and the reasons for such adjustments is to be intimated to the jurisdictional Superintendent of Central Excise within 15 days from the date of adjustment.

If excess tax is paid for service to be provided, but service is provided either partially or wholly, the assessee may take the credit, if he has refunded the excess amount collected to the person from whom it was received or has issued a credit note to the same person for the value of service not provided. It is very important to note that the Service Tax laws do not provide any limitation for adjustment of Service Tax paid in this case.

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