Tribunal rules RIL liable for service tax under reverse charge mechanism

The Tribunal determined that the service tax liability on services provided by Aker Malaysia to RIL should be discharged under the reverse charge mechanism, making RIL liable to pay the service tax. It was found that Aker Malaysia had its "usual place of residence" in Malaysia, thus the reverse charge mechanism was applicable. The Tribunal also held that RIL remained liable to pay the service tax under the reverse charge mechanism for both pre-2012 and post-2012 periods. The order confirming the demand of service tax against Aker India was set aside, and the appeal was allowed.

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Issues Involved:
1. Liability of service tax under reverse charge mechanism or forward charge mechanism.
2. Determination of the person liable to pay service tax.
3. Applicability of extended period of limitation for demand of service tax.
4. Validity of the demand for service tax already paid by the service recipient.

Issue-wise Detailed Analysis:

1. Liability of Service Tax under Reverse Charge Mechanism or Forward Charge Mechanism:

The core issue revolved around whether the service tax liability on services provided by Aker Malaysia to RIL should be discharged under the reverse charge mechanism by RIL or under the forward charge mechanism by Aker India. The appellant contended that since Aker Malaysia was incorporated in Malaysia, the reverse charge mechanism under Section 66A of the Finance Act was applicable, making RIL liable to pay the service tax. The Department, however, argued that Aker India should discharge the service tax liability under the forward charge mechanism.

The Tribunal found that Aker Malaysia, being a foreign body corporate, had its "usual place of residence" in Malaysia as per Explanation 2 to Section 66A(2) of the Finance Act. Thus, the reverse charge mechanism was applicable, and RIL, as the service recipient, was rightly discharging the service tax liability. The Tribunal rejected the Department's contention that the service provider should discharge the service tax liability under the forward charge mechanism.

2. Determination of the Person Liable to Pay Service Tax:

For the period prior to 2012, the Tribunal held that Aker Malaysia, being a foreign entity, fell under type (ii) service providers as per Section 66A(1)(a) of the Finance Act. Therefore, the reverse charge mechanism applied, and RIL was liable to pay the service tax. For the period post-2012, the Tribunal referred to Section 68 of the Finance Act and Rule 2(1)(d)(i)(G) of the Service Tax Rules, 1994, which stipulated that the recipient of the service in a taxable territory should pay the service tax. The Tribunal concluded that the 2012 Rules, which were framed to determine the taxability of services, did not alter the person liable to pay the tax. Hence, RIL remained liable to pay the service tax under the reverse charge mechanism.

3. Applicability of Extended Period of Limitation for Demand of Service Tax:

The Tribunal examined whether the extended period of limitation could be invoked. The Department alleged that Aker India had willfully suppressed the fact of establishing a place of business in India to evade payment of service tax. However, the Tribunal noted that Aker India had obtained service tax registration and started discharging service tax from 15.04.2014, indicating no intention to evade tax. The Tribunal found no justification for invoking the extended period of limitation, as the entire service tax liability had been discharged by RIL.

4. Validity of the Demand for Service Tax Already Paid by the Service Recipient:

The appellant argued that since RIL had already paid the service tax under the reverse charge mechanism, demanding the same tax again from Aker India was untenable. The Tribunal agreed, stating that if service tax is paid by one party to the transaction, it cannot be demanded again from the other party. The Tribunal emphasized that the service tax liability had been correctly discharged by RIL, and thus, the demand against Aker India could not be sustained.

Conclusion:

The Tribunal concluded that the reverse charge mechanism under Section 66A of the Finance Act was applicable for the period prior to 2012, and RIL was liable to pay the service tax. For the period post-2012, the Tribunal held that RIL remained liable to pay the service tax under the reverse charge mechanism as per Section 68 of the Finance Act and the Service Tax Rules, 1994. The Tribunal set aside the order dated 10.06.2016 passed by the Principal Commissioner, confirming the demand of service tax against Aker India, and allowed the appeal.

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