2008 (9) TMI 122 - AT - Service Tax

Tribunal rules in favor of Appellants, absolving them of service tax liability

The Tribunal ruled in favor of the Appellants, stating that they were not liable for the payment of service tax as BSNL had already paid the tax and ... Liability of service provider where service receiver/third party has paid tax - acceptance of return and deposit by tax authority as discharging tax demand - penalty for non-payment of service tax - interest for delayed payment of service taxLiability of service provider where service receiver/third party has paid tax - acceptance of return and deposit by tax authority as discharging tax demand - Demand of service tax against the appellants where BSNL had filed return and deposited the tax - HELD THAT: - The Tribunal found on the record and as noted by the Commissioner (Appeals) that BSNL, the service recipient, was registered, had filed the return and had deposited the tax with the Commissionerate of Moradabad which had been accepted. In those circumstances the demand of tax raised against the appellants was held unsustainable because the tax liability, in practical effect, had been discharged by BSNL and accepted by the tax authority. The Departmental contention that the appellants' liability could not be discharged by BSNL was recognised as a possible administrative issue but was rejected on the facts since the return and deposit by BSNL had been accepted by the Commissionerate. [Paras 3, 4]Demand of tax set aside; impugned orders on tax demand quashed.Penalty for non-payment of service tax - interest for delayed payment of service tax - Sustainability of penalties and interest imposed on the appellants - HELD THAT: - The Tribunal noted that the appellants had paid interest for the delay attributable to BSNL and that BSNL had paid the tax. Given the accepted payment of tax by BSNL and the appellants' payment of interest, the Tribunal concluded that both the penalty and the demand were not sustainable. The Commissioner (Appeals) had already reduced penalty to 50%, but on the admitted facts the Tribunal found no basis to maintain the penalty and interest demands against the appellants. [Paras 3, 4]Penalties and related demands set aside; impugned orders in respect of penalty and interest quashed.Final Conclusion: Appeals allowed; impugned orders set aside and appellants granted consequential relief as tax was deposited by BSNL and the interest for delay had been paid by the appellants. Issues:1. Liability of payment of service tax by the Appellants for security services provided to Bharat Sanchar Nigam Ltd. (BSNL).2. Imposition of penalties and interest on the Appellants for non-payment of service tax.Analysis:1. The Appellants, engaged in providing security services, had an agreement with BSNL where BSNL agreed to pay the service tax. The Commissioner (Appeals) confirmed the demand of tax and imposed penalties, which were later reduced to 50% of the tax amount. However, it was undisputed that BSNL had paid the tax and filed returns for the services provided by the Appellants.2. The Tribunal noted that BSNL, a Government of India Undertaking, had indeed paid the tax and interest for any delay in payment. The Appellants, being a small organization, had fulfilled their obligations as per the agreement. The Tribunal emphasized that the tax liability cannot be imposed on the Appellants when BSNL had already discharged it. The Appellants had also paid interest for any delay by BSNL in tax payment.3. Despite the argument by the Departmental Representative (DR) that the Appellants could not be absolved of tax liability, the Tribunal found that BSNL's registration with the Central Excise Department, filing of returns, and tax deposit with the Moradabad Commissionerate were all in order. Therefore, the contention that the Appellants were liable for the tax was deemed unsustainable. The Tribunal set aside the demand of tax and penalties, allowing the appeals with consequential relief.This judgment clarifies the principle that when a third party, such as BSNL in this case, has already paid the service tax as per the agreement, the primary service provider (Appellants) cannot be held liable for the same. The Tribunal's decision was based on the factual findings that BSNL had fulfilled its tax obligations, thereby absolving the Appellants from any further tax liability.