Reverse charge liability for manpower supply services under Finance Act; extended limitation demand quashed and appeal allowed.

Reverse charge mechanism placed liability to pay service tax on the service recipient for manpower supply/security services; where tax is payable 100% by recipient the provider is not liable for recipients tax defaults. Revenue must prove fraud, collusion, wilful misstatement or suppression of facts to invoke the extended limitation under the proviso to Section 73(1); absent such proof and given appellants bona fide belief and documentary evidence that recipient discharged tax, the extended-period demand cannot be sustained. Commissioner (Appeals) failed to adjudicate this point; impugned demand set aside and appeal allowed.

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Issues: Whether the demand for service tax of Rs.10,35,930/- (with interest and penalties) raised by invoking the proviso to Section 73(1) of the Finance Act, 1994 is sustainable or is time-barred; and whether the appellant, being a provider of manpower/security services where tax liability arises under reverse charge, could be held liable under the extended period.

Analysis: The Tribunal examined whether the requisites for invoking the extended five-year limitation under the proviso to Section 73(1) viz., fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade tax were specifically alleged and supported by material. The decision applies settled principles that mere non-payment does not attract the extended period absent positive acts showing intent to evade; the burden to prove mala fide lies on the Revenue and must be reflected in the show cause notice. The Tribunal also analysed the statutory scheme of reverse charge mechanism and observed that liability of service recipient is independent of liability of service provider; where tax is 100% on reverse charge basis, demand could not be sustained against the provider for recipients' liability. Relevant notifications and case law were considered to determine applicability of RCM and the standard for invocation of extended limitation.

Conclusion: The demand raised by invoking the extended period of limitation under the proviso to Section 73(1) is not sustainable. The impugned order is set aside and the appeal is allowed in favour of the assessee.

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