2026 (2) TMI 732 - AT - Service Tax

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 ... Double taxation - single legal entity and inter-unit tax adjustment - payment of service tax under different registration/accounting code - reverse charge mechanism - extended period of limitation u/s 73(1) of the Finance Act, 1994 - interest and penalties under Sections 75, 76, 77 and 78 of the Finance Act, 1994 - HELD THAT:- The dispute in the present case is that the duty was discharged at Mumbai whereas as per the provisions of the law, the same should have been discharged at Vapi. At this stage, the Learned Advocate seeks to place reliance on the Division Bench decision of Kolkata, in the matter of Indian Oil Corporation Limited vs Commissioner of CGST & Central Excise-[2025 (6) TMI 850 - CESTAT KOLKATA], held that, ' it is settled that merely because the service tax paid under different registration but by the same company, cannot tantamount to non- payment of service tax. The law does not permit the taxation authority to recover the tax again where the tax on the same taxable event has already been paid, albeit under a different head or accounting code. Hence, the demand of service tax which was already paid cannot be made twice. Accordingly, we hold that the demand of service tax confirmed in the impugned order is not sustainable and hence, we set aside the same. Since the demand of service tax is not sustainable, the question of demanding interest under Section 75 and imposing penalties under Section 76, 77, and 78 of the Finance Act, 1994 does not arise and accordingly, the same imposed in the impugned order are set aside.” Confronted with the decision given as the precedent, the Learned AR does not oppose and reiterates the findings of the lower authorities. In view of above stated decision, this court finds that the matter is already covered and appeal deserves to be allowed. Appeal allowed. 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.