Reverse charge on inward freight is unsustainable where the transporter has already paid service tax, and Cenvat credit remains available.

Service tax under reverse charge cannot be demanded from the recipient of inward freight where the transport service provider has already discharged the tax liability, because a further demand would be an incorrect application of reverse charge and would create double taxation. On the same facts, Cenvat credit remains admissible where the transporters have paid service tax on the inward transportation service and the service is used as an input service by the assessee. The stated principle is that once tax has been validly paid by the service provider, the recipient cannot be fastened with a second tax demand, and credit cannot be denied on that basis.

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Issues: (i) Whether service tax could be demanded from the recipient of inward freight under reverse charge when the transport service provider had already discharged the tax liability. (ii) Whether Cenvat credit was admissible in respect of the service tax paid by the transporters on inward freight services.

Issue (i): Whether service tax could be demanded from the recipient of inward freight under reverse charge when the transport service provider had already discharged the tax liability.

Analysis: The liability under the relevant transport service regime was treated as having been discharged by the transporters themselves. On the admitted facts, the invoice value and the service tax indicated by the transporters had been paid, and there was nothing to show that tax was still outstanding from the service provider. In such circumstances, a further demand on the recipient would amount to an incorrect application of reverse charge and would result in double taxation.

Conclusion: The demand of service tax on the assessee under reverse charge was not sustainable and was set aside.

Issue (ii): Whether Cenvat credit was admissible in respect of the service tax paid by the transporters on inward freight services.

Analysis: The transporters had rendered the inward transportation service and had discharged the service tax liability. Since the service was used as an input service for the assessee and the factual basis for payment of tax by the transporters was not disputed, the credit taken by the assessee was correctly allowed.

Conclusion: The assessee was entitled to Cenvat credit and the revenue's challenge failed.

Final Conclusion: The assessee succeeded on the tax demand issue and the revenue's appeal on credit was rejected, leaving the order in favour of the assessee as a whole.

Ratio Decidendi: Where the service tax on a transportation service has already been discharged by the service provider, a further demand on the recipient under reverse charge is unsustainable, and credit of tax paid on eligible input services cannot be denied on that basis.

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