2023 (7) TMI 917 - AT - Service Tax

Appellate Tribunal Overturns Service Tax Demand & Penalties on Directors of Aadarsh Sri Sai Manpower Solution

The Appellate Tribunal set aside the order confirming the service tax demand and penalties imposed on directors of M/s. Aadarsh Sri Sai Manpower Solution ... Discharge of Service tax liability - manpower recruitment or supply agency service - reverse charge mechanism - whether payment of 75% tax by the recipient of service, when the service provider (the appellant) was required to deposit 100% tax but paid only 25% tax could be treated as discharge of service tax liability by the appellant? - levy of penalty - HELD THAT:- The decision of the Karnataka High Court in M/S. ZYETA INTERIORS PVT. LTD. SHRI. AMIT PRAKASH, DIRECTOR OF M/S. ZYETA INTERIORS PVT. LTD, VERSUS THE VICE CHAIRMAN SETTLEMENT COMMISSION, CHENNAI, THE PRINCIPAL COMMISIONER OF GST AND CENTRAL EXCISE, BANGALORE [2021 (10) TMI 233 - KARNATAKA HIGH COURT] emphasises that where the government received the entire amount of tax an assessee cannot be called upon to make payment even if it had deposited some portion of the tax dues and the remaining portion was deposited by the service provider. The Karnataka High Court also observed that once the tax liability has been discharged, regardless of the person who has discharged, an assessee cannot be asked to pay the tax again. In this view of the matter, when the entire tax due has been deposited in the account of the Central Government though not entirely by the appellant as a service provider but also by the service recipients, it will not be possible to sustain the demand - The penalties could also not, for this reason, be imposed upon the directors of the appellant. Appeal allowed. Issues involved:The issues involved in this case are the confirmation of service tax demand with interest and penalty, the imposition of penalty on directors, and the applicability of reverse charge mechanism to a private limited company.Confirmation of Service Tax Demand:The Appellate Tribunal upheld the order confirming the demand of service tax on M/s. Aadarsh Sri Sai Manpower Solution (P) Ltd. for the period 2011-12 to 2013-14. It was found that the party was liable to discharge the complete service tax liability on the manpower supply services rendered during this period. The total differential service tax amounting to Rs. 72,44,949/- was held to be recoverable from the appellant. The Tribunal noted that the appellant had partially paid the tax liability, and the amount deposited was liable to be appropriated towards the demand of service tax and interest.Imposition of Penalty on Directors:The Tribunal imposed a penalty of Rs. one lakh each on Madan Singh Rawat and Trilok Singh Rawat, directors of the appellant, under Section 78A of the Finance Act 1994. It was found that the directors had abetted in the evasion of service tax by not fully discharging the tax liability, despite being aware of their legal responsibility to do so. The Tribunal held them liable for the penalty under Section 78A of the Act.Applicability of Reverse Charge Mechanism:The issue considered was whether the payment of 75% tax by the recipient of service, when the service provider (appellant) was required to deposit 100% tax but paid only 25% tax, could be treated as the discharge of service tax liability by the appellant. Citing precedents, including the Karnataka High Court's decision in Zyeta Interiors Pvt. Ltd., the Tribunal emphasized that once the entire tax due had been deposited to the government, regardless of the proportion paid by the appellant and the service recipients, the demand could not be sustained. Consequently, the penalties imposed on the directors were also set aside.Conclusion:The impugned order confirming the service tax demand and penalties was set aside by the Appellate Tribunal. Service Tax Appeal No. 50610 of 2017, Service Tax Appeal No. 50612 of 2017, and Service Tax Appeal No. 51454 of 2017 were allowed in favor of the appellants.