Reverse charge service tax cannot be shifted to the recipient when the foreign provider enjoys statutory tax immunity.

Reverse charge service tax cannot be imposed on an Indian recipient where the foreign service provider is statutorily immune from taxation under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958. The recipient's liability is only a deemed transfer of the provider's underlying tax burden, so if no tax is payable by the provider, nothing can be shifted to the recipient. Tax collection from the recipient would otherwise defeat the provider's statutory immunity. On that reasoning, the service tax demand was held unsustainable and the Revenue's appeal was rejected.

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Issues: Whether service tax could be demanded on reverse charge basis from the Indian recipient when the foreign service provider enjoyed immunity from taxation under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958.

Analysis: The service provider was International Finance Corporation, Washington, which was accepted to be immune from taxation in India. The liability under reverse charge is only a deemed shift of the service provider's tax obligation to the recipient when the provider is otherwise liable to tax. If the foreign provider itself has no liability to pay tax because of statutory immunity, there is no underlying tax burden capable of being shifted to the recipient. The immunity available to the provider would be defeated if tax were collected from the Indian recipient in respect of the same service.

Conclusion: The demand of service tax on reverse charge basis was not sustainable, and the Revenue's appeal was rejected.

Ratio Decidendi: Reverse charge liability cannot be fastened on the recipient where the foreign service provider is statutorily immune from the underlying tax itself, because the recipient's obligation is only a deemed transfer of the provider's tax burden.

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