Reverse Charge Mechanism: If provider actually discharged full tax, recipient's liability cannot be sustained; verification required.

Where the partial reverse charge mechanism applies, the article directs the adjudicating authority to verify whether service providers actually discharged the entire service tax (including payments made on behalf of recipients); if providers discharged 100% of the liability, demands against recipients cannot be sustained. Where payment by providers is not established or recipients reimbursed providers, demands, interest and penalties may be confirmed. The piece clarifies that revenue neutrality under reverse charge does not bar invocation of the extended period of limitation or levy of penalty where the recipient was aware of statutory obligations and failed to prove discharge by the provider.

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Issues: Whether the service recipient's liability under the partial reverse charge mechanism is discharged where the service provider has purportedly paid the entire service tax, and the consequence of that on the demand, interest, extended period and penalty.

Analysis: The statutory framework (Section 68(2) of the Finance Act, 1994 read with Notification No. 30/2012-ST dated 20.06.2012) requires apportioned liability between service provider and service recipient. Authorities and decisions cited demonstrate that where the entire tax on the same service has in fact been discharged by the provider, confirming demand again against the recipient would amount to double taxation. However, the factual question whether the service providers actually paid the entire tax, or whether the recipients reimbursed the tax component to providers, is determinative. The record before the adjudicating authorities did not conclusively establish payment of 100% tax by providers or payment on behalf of recipients. Regarding limitation and penalty, revenue neutrality under RCM does not preclude invocation of extended period of limitation or levy of penalty where the recipient was aware of statutory obligations and failed to prove discharge of liability by the provider.

Conclusion: The matter is remanded to the original adjudicating authority to verify and satisfy itself whether the service providers discharged the entire service tax liability (including whether payment was made on behalf of the recipient). To the extent the providers have discharged 100% of the liability, the demand against the recipient shall not sustain; for the remaining amount the demand, interest and penalty may be confirmed. The invocation of extended period and imposition of penalty is not barred on the present facts.

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