Service provider's tax payment eliminates recipient's reverse charge liability, double taxation impermissible

CESTAT Ahmedabad held that appellant was not liable to pay service tax under reverse charge mechanism where service provider had already discharged the tax liability. The tribunal ruled that recovery of service tax twice on the same service is impermissible, following precedent in Dhariwal Industries Limited. Since transport agency had paid service tax which was accepted by revenue authorities, no additional demand could be raised against appellant. The tribunal further held that appellant was eligible for CENVAT credit as the payment constituted service tax, not mere deposit. The impugned order was set aside and appeal allowed.

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Issues Involved:
1. Liability of the service recipient to pay service tax under the Reverse Charge Mechanism (RCM).
2. Whether the service tax can be demanded twice for the same service.
3. Eligibility for Cenvat Credit when service tax is paid by the service provider.

Detailed Analysis:

1. Liability of the service recipient to pay service tax under the Reverse Charge Mechanism (RCM):
The assessee, engaged in the manufacturing of biscuits, received manpower supply services from a non-body corporate, M/s Setu Consultancy. According to Notification No. 30/2012 dated 20.06.2012, effective from 01.07.2012, the service recipient (a body corporate) is liable to pay 75% of the service tax under the Reverse Charge Mechanism (RCM). The assessee did not pay the service tax, leading to the issuance of a show cause notice on 16.06.2016. The adjudicating authority initially dropped the proceedings, noting that the service provider had paid the service tax. However, the Commissioner (Appeals) reversed this decision, holding that the statutory provision mandated the appellant to pay the service tax, irrespective of the payment made by the service provider.

2. Whether the service tax can be demanded twice for the same service:
The Tribunal examined whether the service tax could be demanded twice for the same service. The Tribunal found that although the appellant was liable to pay the service tax, the service tax had already been discharged by the service provider. It was held that recovering the service tax again from the appellant would amount to double taxation, which is impermissible. This view was supported by precedents, including the case of Dhariwal Industries Limited, where it was established that once service tax is paid by the service provider, the same cannot be demanded again from the service recipient.

3. Eligibility for Cenvat Credit when service tax is paid by the service provider:
The Tribunal also addressed the issue of Cenvat Credit eligibility. It was noted that if the service tax has been paid by the service provider, the service recipient is entitled to avail of the Cenvat Credit. This principle was reinforced through several judgments, including Elkos Pens Ltd. and Umasons Auto Compo Pvt. Ltd., which held that the service recipient could not be held liable for service tax if the service provider had already paid it and the credit of such payment was validly availed.

Conclusion:
Based on the analysis, the Tribunal concluded that the demand for service tax from the appellant was not sustainable since the service tax had already been paid by the service provider. The Tribunal set aside the impugned order and allowed the appeal, emphasizing that double taxation is not permissible and that the appellant is eligible for Cenvat Credit for the service tax paid by the service provider. The decision was pronounced in the open court on 29.08.2024.

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