Point Of Taxation In Service Tax & Central Excise - Contradictory Provisions

Lucky are Service Tax assessees who have to pay tax only after the payment is received irrespective of when the services are rendered. (Read Rule 6. Payment of service as footnote)*     Poor Central Excise assessees have had a raw deal in this regard. In their case liability to pay Central Excise duty arises at the time of clearance of the goods at the factory gate.  Even if the payment for the goods is either partially received or not received at all, they still have to pay the duty on the value of the goods.   An old bone of contention between the department and the manufacturer, has been on the issue of price escalation subsequent to the clearance of goods.    For instance, it is a common practice, such as, with OEM suppliers to a large manufacturer that for delivery of input material for a fixed period of time is fixed at a particular price, with provision for subsequent revision, linked with the fluctuating cost of the basic material used to manufacture such input material. (Floating rate). If Maruti were to source regular supply of a component made of aluminum for one year from an component manufacturer, depending on the fluctuating price in the commodity market, it may periodically review the input cost, and after negotiations, award a post-facto price revision for the past supplies. The differential price then would be paid and the supplier will issue a supplementary invoice to enable Maruti to avail credit on the differential amount for goods that were received several months ago.   The department was of the view that interest should also be paid (which can not be taken CENVAT credit of) from the original date of clearance of goods from the factory.   The matter was being kicked in different directions by different judicial forums for the last several years, with pendulum swing on either side. Now the Supreme Court has  overruled HC Ruling and determined that interest is payable when differential duty is paid on price revision under supplementary invoices.    Following the revision the assessee demanded from its customers the balance of the higher prices and issued to them supplementary invoices. At the same time it also paid the differential duty on the goods sold earlier. SC has ruled that :   The payment of differential duty by the assessee at the time of issuance of supplementary invoices to the customers demanding the balance of the revised prices clearly falls under the provision of sub-section (2B) of section 11A of the Act. We are unable to subscribe to the view taken by the High Court. It is to be noted that the assessee was able to demand from its customers the balance of the higher prices by virtue of retrospective revision of the prices. It, therefore, follows that at the time of sale the goods carried a higher value and those were cleared on short payment of duty. The differential duty was paid only later when the assessee issued supplementary invoices to its customers demanding the balance amounts. Seen thus it was clearly a case of short payment of duty though indeed completely unintended and without any element of deceit etc. The payment of differential duty thus clearly came under sub-section (2B) of section 11A and attracted levy of interest under section 11AB of the Act.   Nevertheless, are things as rosy for Service Tax assessees ? Therefore, my query about responsibility of paying tax / duty  of the assessee to the Govt, is:         1. What if the service tax assessee receives advance payment but does not render the service; and         2.  What if the Central excise manufacturer receives advance payment but does not supply goods ?   Responses invited.    (Footnote below)   Kind regards, Miss Rebecca Andrews        *Rule 6. Payment of service tax –   (1) The service tax shall be paid to the credit of the Central Government,-   (ii)       by the 5th day of the month, in any other case, immediately following the calendar month in which the payments are received, towards the value of taxable services:    67. Valuation of taxable services for charging Service tax (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,— (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;  (Write-up initially carried by servicetaxandvat..com)