Reverse charge service tax demand on manpower supply fails where providers already discharged the tax, with related penalty relief.

Service tax under reverse charge on manpower supply services was held unsustainable where the service providers had already discharged the entire tax liability, and Revenue did not rebut that finding. The demand would have resulted in double taxation, so the appellate order deleting the demand was upheld. As the basic demand failed, interest and penalty under Section 78 could not survive. However, the procedural penalty under Section 77 remained intact.

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Issues: Whether service tax demand under the reverse charge mechanism on manpower supply services was sustainable where the service providers had already discharged the tax liability, and whether interest and penalty could survive.

Analysis: The reverse charge liability for manpower supply services under Notification No. 30/2012-ST dated 20/06/2012 was payable on 75% of the value of services for the relevant period. The first appellate authority had found that the service providers had already paid the entire service tax on the services rendered, and the demand from the recipient would therefore amount to double taxation. That factual finding was not controverted by Revenue. In the absence of material to dislodge the finding that tax due to the Government had already been discharged, the demand could not be sustained. Once the basic demand failed, interest and penalty under Section 78 could not survive, though the penalty under Section 77 for procedural violation was maintained.

Conclusion: The demand under reverse charge was not sustainable, and the appellate order upholding deletion of the demand was correct. Interest and penalty linked to the failed demand did not survive, while the penalty under Section 77 remained intact.

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