2026 (1) TMI 1522 - AT - Service Tax

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 ... Extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994 - reverse charge mechanism / liability of service recipient - burden of proof on Revenue to establish fraud, collusion, wilful misstatement or suppression of facts - HELD THAT:- Appellant is a service provider providing manpower supply/security services. Service tax in respect of these services as per Notification No.30/2012 as amended by Notification No. 07/2015 dated 01.03.2015 is to be paid by the recipient of the services and not the service provider. Appellant by in his ground of appeal before Commissioner (Appeals) specifically taken this point and he also produced certain documents as per which he claimed that the service tax was to be deposited by the serve recipient and who has duly deposited the same. In case of reverse charge mechanism, law is very categorically clear and it is in cases where service tax is to be paid by the service recipient and liable to pay service tax by the service recipient is completely distinct from the liability of service provider to pay service tax. It is clear that in respect of the services where the service tax is to be paid 100% on reverse charge basis, service provider is not required to pay in respect of liabilities of service recipients. Even if no service tax has been paid by the service recipient demand could not have been demanded from service provider i.e. appellant. There is enough sufficient ground for the appellant to entertain bonafide belief that he was not required to pay any tax in respect of the consideration received for the provision of taxable services on which service tax was to be discharged by service recipient on reverse charge. That being so the demand made against the appellant by invoking extended period of limitation could not have been sustained. Appellant had specifically taken ground to this effect in their appeal before Commissioner (Appeals) and Commissioner (Appeals) failed to record any finding in this regard. Demand made by invoking extended period cannot be upheld. Thus, find no merits in the impugned order and the same is set aside. Appeal is allowed. 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.