Service providers must prove payment of collected service tax to government for RCM compliance verification

CESTAT Chennai held that the appellant must produce evidence showing service providers paid collected service tax to government accounts for manpower recruitment, supply agency, and security services under RCM. The matter was remanded to original adjudicating authority for verification of ST-3 returns and proper adjudication following natural justice principles. Extended period invocation was deemed unjustified as revenue failed to establish intent to evade tax, making extended period demand non-maintainable. Appeal disposed with directions for fresh adjudication.

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Issues Involved:
1. Confirmation of Service Tax demands for Manpower Recruitment and Supply Agency Service, Security Service, and Goods Transport Agency Service under Reverse Charge Mechanism (RCM).
2. Invocation of the extended period under the proviso to Section 73(1) of the Finance Act, 1994.

Summary:

Issue 1: Confirmation of Service Tax Demands under RCM

The appellant, M/s. Indian Medical Practitioners Co-Operative Pharmacy & Stores Limited, was audited for the period from August 2012 to June 2017, revealing non-payment of Service Tax on various services under RCM. A Show Cause Notice was issued demanding Service Tax on Manpower Supply and Agency Services, Security Services, Goods Transport Agency Services, and Notice-Pay. The original adjudicating authority confirmed these demands, but on appeal, the Commissioner of GST and Central Excise (Appeals) upheld the demand for Manpower Recruitment and Supply Agency Services and remanded the demand for GTA services, setting aside the demand for Notice-Pay.

The appellant argued that Service Tax was paid to the service providers, who were registered with the Service Tax Department, and demanding the same tax again would result in double taxation. The appellant cited several judicial precedents supporting their claim that double taxation is impermissible. However, the lower authorities observed that the appellant failed to provide adequate proof, such as challans, ST-3 returns, or agreements with service providers, to substantiate their claim.

The Tribunal held that the appellant must produce necessary evidence to the Departmental authorities showing that the Service Tax collected by the service providers was paid to the Government. The issue was remanded to the original adjudicating authority for verification of such evidence.

Issue 2: Invocation of Extended Period under Section 73(1) of the Finance Act, 1994

The Show Cause Notice covered the period from October 2012 to June 2017, invoking the extended period under Section 73(1) of the Finance Act, 1994. The appellant argued that the extended period could only be invoked in cases of intentional evasion, which was not applicable as they had paid the Service Tax to the service providers.

The Tribunal found that the appellant had produced invoices showing payment of Service Tax to the service providers, indicating no intent to evade tax. Therefore, invoking the extended period was deemed unjustified. The Tribunal held that the demand for the extended period was not maintainable and remanded the case to the original adjudicating authority to verify whether the Service Tax paid by the service providers was deposited to the Government account.

Conclusion:

The appeal was disposed of with directions to the original adjudicating authority to verify the appellant's evidence regarding the payment of Service Tax by the service providers and to pass a speaking order in compliance with the principles of natural justice. The demand for the extended period was not upheld.

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