Payment by one unit precludes duplicate service tax demand; extended limitation and related penalties cannot be invoked when tax was already paid.
Under the reverse-charge framework the article clarifies that where service tax on the same taxable event has been paid by one unit of a single legal entity, a second recovery from another unit is not sustainable and departmental adjustment is the appropriate remedy; therefore duplicate demands are set aside. It further clarifies that extended limitation for assessment and consequent interest and penalties cannot be invoked where there is no suppression or intent to evade because tax has already been paid by a related unit; thus interest and penalties founded on such unsustainable demands are also not sustainable.
Issues: (i) Whether a demand for service tax can be sustained against one unit of a single legal entity where the same service tax has already been paid by another unit of the same legal entity; (ii) Whether extended period of limitation under Section 73(1) of the Finance Act, 1994 is invocable where tax has already been paid by another unit of the same legal entity and whether consequent interest and penalties can be sustained.
Issue (i): Whether a second demand for the same service tax can be made when one unit of the same legal entity has already paid the tax under a different registration or accounting code.
Analysis: The matter involves application of the reverse charge liability framework under Section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 and authorities holding that payment of service tax by one unit of the same legal entity cannot be treated as non-payment for another unit. Precedents establish that internal remittance under a different registration or accounting code, where payment on the same taxable event has been made by another unit of the same legal entity, cannot justify a fresh demand and that departmental adjustment remedies are available instead of double recovery.
Conclusion: Demand in respect of tax already paid by another unit of the same legal entity is not sustainable and is set aside. This conclusion is in favour of the assessee.
Issue (ii): Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994, and consequential interest and penalties under Sections 75, 76, 77 and 78 of the Finance Act, 1994, are invocable where service tax on the same transaction has already been paid by another unit of the same legal entity.
Analysis: Where there is no suppression of facts or intention to evade tax because the service tax has already been paid by another unit of the same legal entity, invocation of the extended period under Section 73(1) is not justified. If the substantive demand for tax is unsustainable, consequential interest and penalties founded on that demand also cannot stand.
Conclusion: Extended period of limitation is not invocable and consequential interest and penalties are not sustainable. This conclusion is in favour of the assessee.
Final Conclusion: The appeal is allowed on the grounds that the tax demand is unsustainable both on merits due to prior payment by another unit of the same legal entity and on limitation grounds; consequential interest and penalties are set aside.
Ratio Decidendi: Payment of service tax by one unit of a single legal entity in respect of the same taxable event precludes a second recovery from another unit of the same legal entity; where such payment exists and there is no suppression or intent to evade, extended limitation and consequential interest and penalties cannot be invoked.
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AI Drafter ✕
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