Rent-a-cab operator not liable for service tax under Reverse Charge when recipient already paid

M/s Balaji Travels Versus Commissioner of CGST & Central Excise, Bhopal

M/s Balaji Travels Versus Commissioner of CGST & Central Excise, Bhopal - TMI The core legal questions considered by the Tribunal in this appeal are:

(i) Whether the appellant, a registered rent-a-cab operator service provider, was liable to pay service tax for the financial year 2015-2016, or whether the liability to pay service tax rested entirely on the service recipient under the Reverse Charge Mechanism (RCM) as per Notification No. 30/2012;

(ii) Whether the appellant's failure to file ST-3 returns for the relevant period constituted suppression or evasion of service tax, justifying the imposition of penalty under Section 77 of the Finance Act;

(iii) Whether the invoice/order values included service tax, thereby supporting the department's contention of short payment of service tax by the appellant;

(iv) Whether the demand for service tax and penalties confirmed by the adjudicating authorities and Commissioner (Appeals) was sustainable in light of the admitted facts and documentary evidence;

(v) Whether third-party data (such as Income Tax Returns and Form 26AS) alone could form the basis for confirming the demand and penalties without corroborative evidence;

(vi) Whether the extended period of limitation could be invoked on the ground of suppression or evasion by the appellant.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax under Reverse Charge Mechanism (RCM)

The relevant legal framework is Notification No. 30/2012 dated 20.06.2012, which exempts the rent-a-cab operator service provider from paying service tax and instead makes the service recipient liable to pay the entire service tax under RCM. Entry No. 7(a) of the Notification specifically states that services provided by way of renting motor vehicles designed to carry passengers to persons not engaged in a similar line of business are subject to RCM.

The appellant was registered with the service tax department since 2009 and regularly filed ST-3 returns until July 2012, when the Notification came into effect. Post-notification, the appellant ceased filing returns, contending that the liability shifted to the service recipient.

The Tribunal noted that the service recipient, M/s GAIL India Ltd., had issued a certificate confirming payment of the entire service tax under RCM for the relevant financial year. This admission was pivotal. The Tribunal relied on Circular No. 341/18/2004 of the CBEC, which clarifies that tax liability discharged by either party under RCM or forward charge mechanism should not result in double taxation.

Precedents cited include the Tribunal's decision in Zyeta Interiors Pvt. Ltd., which held that once the government receives the full tax amount, the assessee cannot be called upon to pay again irrespective of the payment mechanism. Similarly, the Tribunal in Geeta Industries Pvt. Ltd. held that when the entire tax due is paid, whether by the service provider or recipient, demand cannot be sustained.

Applying these principles, the Tribunal concluded that the appellant was not liable to pay service tax for the period in question as the recipient had already discharged the liability under RCM.

2. Alleged Suppression and Non-filing of ST-3 Returns

The department alleged that the appellant's failure to file ST-3 returns constituted suppression of facts and evasion of service tax, justifying penalties under Section 77 of the Finance Act. The department also relied on third-party data (ITR and 26AS) to detect the alleged evasion.

The appellant contended that post-Notification No. 30/2012, they were not required to file returns as the tax liability was on the recipient. The Tribunal examined Section 70 of the Finance Act, which mandates return filing by the service provider liable to pay tax. Since the appellant was exempted from liability, the non-filing was justified.

The Tribunal further observed that the department failed to prove any act of suppression or mala fide on the part of the appellant. The burden of proof for suppression lies on the department, which was not discharged. Reliance was placed on Supreme Court decisions holding that extended limitation can only be invoked if suppression is proved, and that the burden of proving mala fide lies with the party alleging it.

Consequently, the Tribunal held that penalties for non-filing and suppression were wrongly imposed.

3. Inclusion of Service Tax in Invoice/Order Value

The department argued that the invoice/order values were inclusive of service tax, supporting the claim of short payment. The appellant countered this by producing invoice No. 3300051384 dated 09.07.2013, which did not charge service tax. The appellant also referred to the tender document clauses, which explicitly excluded service tax from the contract value and stated that service tax would be included only if the service provider was liable to pay it.

The Tribunal examined these documents and noted that clauses referring to inclusion of service tax applied only if the appellant was liable to pay service tax, which was not the case post-notification. Therefore, the Tribunal held that the invoice/order values did not include service tax and the department's contention was unfounded.

4. Reliance on Third-Party Data for Confirmation of Demand

The department's demand was primarily based on third-party information from Income Tax returns and Form 26AS. The Tribunal emphasized that such data cannot be the sole basis for confirming a demand without corroborative evidence. It relied on the Supreme Court ruling in Jai Prakash Industries Ltd., which held that third-party data must be verified and substantiated before confirming any demand.

Since the department did not produce corroborative evidence beyond the third-party data, the Tribunal found the demand unsustainable.

5. Extended Period of Limitation and Burden of Proof

The department issued the show cause notice invoking the extended period of limitation on the ground of suppression. The Tribunal noted that the department failed to demonstrate any suppression or evasion on the appellant's part. The burden to prove mala fide conduct lies with the department, which was not discharged. The Tribunal also disagreed with the lower authorities' shifting of the burden onto the appellant to prove bona fide conduct.

Accordingly, the extended limitation period was not applicable.

Significant Holdings:

"The perusal makes it abundantly clear that the service tax liability with respect to 'rent-a-cab operator' service was to be discharged by the service recipient under Reverse Charge Mechanism. The recipient here is M/s GAIL India Ltd. who have acknowledged to have paid the entire service tax. This observation itself is sufficient for me to hold that the appellant cannot be asked to again pay the same amount of service tax for the same period as stands already paid by the service recipient in compliance of the Notification No. 30/2012."

"Reverse Charge Mechanism should not lead to double taxation i.e. once the tax liability is discharged regardless of the person who discharged it, the assessee cannot be made to pay the tax again."

"Third party information cannot be the basis of confirmation of demand unless corroborated by relevant documents."

"The burden of proving any form of mala fide lies on the shoulders of the one alleging it."

"The appellant was not required to file ST-3 returns in terms of Section 70 of Finance Act as they were not liable to pay service tax post Notification No. 30/2012."

Accordingly, the Tribunal set aside the demand for service tax and penalties imposed on the appellant, allowing the appeal.