Service Recipient Should Not Be Burdened With Demand When Reverse Charge liability paid by Service Provider

Brief : : Issue Under the laws governing the payment of service tax, Section 68(2) of the Finance Act, 1994, in respect of certain services, provides for shifting the liability to pay service tax to government to the service receiver instead of service provider. There are instances where the service receiver, instead of depositing the service tax to government, pays the same to the service provider. In such cases, the Service tax Department often takes the stand that the liability of service receiver is not extinguished and accordingly demands for payment of service tax and penalties are levied and are generally confirmed upto CCE level. As a result a lot many queries are received asking for solutions to situations where the service provider has discharged the liability and service receiver is unsure of how to mitigate his liabilities and penalty exposures. Resolution In Income-tax Act 1961, for long there was the debate on liability of deductor where the deductee/receiver of payment has discharged the income tax liability. No relief was provided under the Act and the deductor was treated and penalized as assessee in default and burderned with penalties and interest. The anomaly was later corrected vide insertion of proviso to section 201(1) of the Act. However, no such relief has been given or proposed to service tax recipients in service tax laws. Nevertheless, the various benches of CESTAT have taken a liberal view in this situation and offered adequate relief to the service recipients. In recent case, Mumbai bench of CESTAT in case of Umasons Auto Compo Pvt. Ltd. Vs. Commissioner of Central Excise & Customs, Aurangabad reported at 2014 - TIOL - 126 - CESTAT MUM, provided relief to the service recipient. Umasons Auto Compo Private Limited (Umasons), received the services of a Goods and Transport Agent. Instead of discharging the service tax liability on its own under Reverse Charge Mechanism. In the adjudication order, demand of service tax was raised. The same was confirmed by Commissioner (Appeals). Providing relief to Umasons, CESTAT held that there is no dispute regarding payment of service tax by the provider of GTA service. Once the amount of service tax is accepted by the Revenue from the provider of GTA service, it cannot be again demanded from the recipient of the GTA service. We have also shared below additional judgments by various benches of Central Excise & Service Tax Appellate Tribunal (CESTAT) ruling in favor of the assessee on the similar grounds. In Navyug Alloys Private Limited Versus CCE & C, Vadodara-II reported at 2008 (8) TMI 100, Ahmedabad Bench of the CESTAT ruled Once tax already paid on the services, it was not open to the Department to confirm the same against the appellant, in respect of the same services. In M/s. Cronimet Alloys India Limited Versus Commissioner of Central Excise Visakhpatnam-I Commissionerate Visakhapatnam, reported at 2013 (7) TMI 593 Bangalore bench of the CESTAT commented that it cannot be said that there was intention to evade payment of duty when the transporter had paid the service tax and in any case as a recipient, appellant was eligible for the benefit of CENVAT Credit also. Thus ruling out any case for alleging that assessee had the intention to evade service tax. Way Forward The above judgments can be used to defend positions where under reverse charge mechanism, the clients have paid the service tax to the service provider and the same has been deposited by the service provider with the government. The emphasis here is on service tax has been deposited by the service provider with the government. In absence of the same, the above case laws should not be relied upon by the service receiver. Citation : Umasons Auto Compo Pvt. Ltd. Vs. Commissioner of Central Excise & Customs, Aurangabad reported at 2014 - TIOL - 126 - CESTAT – MUM Judgment : UMASONS AUTO COMPO PVT LTD Versus COMMISSIONER OF CENTRAL EXCISE & CUSTOMS 2014 (2) TMI 100 - CESTAT MUMBAI ST/326/10 Dated - 28 November 2013 Head Note Demand of service tax - Recipient of GTA service - Appellant had paid the service tax to the provider of GTA service and the provider has paid to the Revenue and the appellant has availed credit of the same - Held that:- there is no dispute regarding payment of service tax by the provider of GTA service. Once the amount of service tax is accepted by the Revenue from the provider of GTA service, it cannot be again demanded from the recipient of the GTA service - Decided in favour of assessee. Judgment / Order S S Kang, J. For the Appellant : Mr A P Kolte, Adv. For the Respondent : Mr D D Joshi, Superintendent, AR PER : S S Kang Heard both sides.   Appellant filed the appeal against the impugned order passed by Commissioner (Appeals), whereby the Commissioner (Appeals) upheld the adjudication order whereby the demand of service tax was confirmed. The demand is confirmed on the ground that the appellant being recipient of GTA service is liable to pay service tax.   The contention of the appellant is that the appellant had paid the service tax to the provider of GTA service and the provider has paid to the Revenue and the appellant has availed credit of the same. As the service tax has already been paid by the provider of GTA service and Revenue is demanding the same tax from the recipient. Therefore, the demand is not sustainable. The appellant also relies upon the decision of the Tribunal in the case of Navyug Alloys Pvt. Ltd vs CCE & C, Vadodara II reported in 2009 (13) STR 421 (Tri-Ahmd).   Revenue relies upon the finding of the lower authorities and submitted that as per the provisions of the Finance Act, recipient is liable to pay service tax in respect of GTA service and if the same has been paid by the service provider, he can seek refund of the amount.   I find that there is no dispute regarding payment of service tax by the provider of GTA service. Once the amount of service tax is accepted by the Revenue from the provider of GTA service, it cannot be again demanded from the recipient of the GTA service. In view of this, the impugned order is set aside and the appeal is allowed. (Dictated in Court) M/s. Cronimet Alloys India Limited Versus Commissioner of Central Excise Visakhpatnam-I Commissionerate Visakhapatnam 2013 (7) TMI 593 - CESTAT BANGALORE Appeal No: ST/285/2012 Dated - 13 June 2013 Head Note Recovery of service tax – as per Notification No.35/2004-ST assessee should have discharged the service tax as a recipient - proceedings were initiated for recovering service tax on GTA service received by the assessee - Held that:- Extended period could not have been invoked since it cannot be said that there was intention to evade payment of duty when the transporter had paid the service tax and in any case as a recipient assessee was eligible for the benefit of CENVAT Credit also – court relied upon decisions of the Tribunal in Navyug Alloys Pvt. Ltd. vs. CCE, Vadodara-II: (2008 (8) TMI 100 - CESTAT AHEMDABAD) - Stay application – as there was no point in postponing the final issue court granted the stay – appeal decided in favour of assessee. Judgment / Order SHRI B.S.V. MURTHY, J. For the Appellant: Mr. K. Kumaresan, Advocate For the Respondent: Mr. S. Teli, Deputy Commissioner (AR) Appellants are engaged in the manufacture of High Carbon Ferro-chrome and they paid transportation charges and service tax to the transporter of anthracite coal, which is a raw material. There is no dispute that transporter had paid the service tax. Taking the view that as per Notification No.35/2004-ST dated 3.12.2004, appellant should have discharged the service tax as a recipient, proceedings were initiated for recovering service tax on GTA service received by the appellant during the period from September 2006 to March 2007.   The learned counsel submits that there were several Tribunal decisions wherein a view has been taken that if the transporter had paid the service tax, on the same service, tax cannot be demanded from the recipient also. The following decisions were relied upon: (i) Navyug Alloys Pvt. Ltd. vs. CCE, Vadodara-II: 2009 (13) S.T.R. 421 (Tri.-Ahmd.); (ii) Mandev Tubes vs. CCE, Vapi: 2009 (16) S.T.R. 724 (Tri.-Ahmd.); (iii) Sakthi Masala P. Ltd. vs. CCE, Salem: 2009 (15) S.T.R. 314 (Tri.-Chennai); (iv) Deccan Chromates Ltd. vs. CCE, Hyderabad: 2011 (22) S.T.R. 440 (Tri.-Chennai); and (v) CST, Meerut-II vs. Geeta Industries P. Ltd.: 2011 (22) S.T.R. 293 (Tri.-Del.). Further, he submits that extended period could not have been invoked in this case.   I have considered the submissions. I find that the decisions of the Tribunal cited above are applicable to the facts of this case. Further, as submitted by the counsel, extended period could not have been invoked since it cannot be said that there was intention to evade payment of duty when the transporter had paid the service tax and in any case as a recipient, appellant was eligible for the benefit of CENVAT Credit also.   Matter was heard for some time and the issue is squarely covered by the decisions, there is no point in postponing the final issue and granting stay. Accordingly the stay application as well as the appeal are allowed. (Pronounced and dictated in open Court). NAVYUG ALLOYS PVT. LTD. Versus CCE & C, VADODARA-II 2008 (8) TMI 100 - CESTAT AHEMDABAD ST/66/2008 Dated - 19 August 2008 Head Note Appellant availing the GTA services, for the period January, 2005 to September, 2006 - service tax on the said services stands paid by the transporters - Revenue’s contention that it was the liability of the appellant to pay the tax, is not acceptable – held that once the tax is already paid on the services, it was not open to the Department to confirm the same against the appellant, in respect of the same services Judgment / Order Smt. Archana Wadhwa, Member (Judicial) Shri V.B. Tayal, Director for Appellant. Shri Sameer Chitkara, SDR for Respondent. [Order per Archana Wadhwa Member (Judicial)] – Service tax of Rs. 51,385/- stands confirmed against the appellant who are availing the goods transport agency services, for the period January, 2005 to September, 2006. It is on record that the service tax on the said services stands paid by the transporters.  The Revenue's contention is that it was the liability of the appellant to pay the tax and the service tax paid by the transporter providing services cannot be treated as a valid payment. However, the Revenue has not refunded the service tax paid by the transporter to them.   Once tax already paid on the services, it was not open to the Department to confirm the same against the appellant, in respect of the same services. I accordingly set aside the impugned order and allow the appeal with consequential relief to the appellant. (Dictated & pronounced in Court.)