GST Update No 206 on double taxation under RCM

Introduction of concept of reverse charge mechanism under Indirect Taxation is the most powerful check of tax evasion with an intention to expand tax base by imposing self-control on the taxpayers. This has further helped in improving the transparency by making available the data of unorganised sector to the government for analysis. However, the revenue authorities have the tendency to demand payment of tax inspite of the fact that the entire tax has been discharged on the transaction as at times, it is possible that the tax has been discharged by service provider while it was liability of service recipient to pay the tax to the government thereby leading to double taxation. Issue on similar line was reported by the hon’ble Karnataka High Court in the case of VICE CHAIRMAN SETTLEMENT COMMISSION V/S ZYETA INTERIORS PVT. LTD. The decision imparted in this respect is subject matter of discussion of our present update.

The respondent registered under erstwhile GST regime, was engaged in the business of carrying out design, supply and installation of interior work for commercial establishments. A show cause notice was issued in respect of which the assessee applied for settlement of the proceedings. The Settlement Commissioner confirmed the service tax liability along with interest and penalty. Being aggrieved by the order dated 24.03.2020 passed by the Settlement Commission, the respondent approached High Court by filing writ petition. and therefore, Writ Petition was filed by the respondent further. The learned Single Judge vide order dated 18.08.2021, allowed the Writ Petition in part quashing the impugned part of the orders and remitting the matter to the Settlement Commission for consideration afresh. Hence, this Writ Appeal by the Revenue.

The Counsel of revenue argued that the assessee is required to adhere to the provisions of Section 68(2) of Finance Act, 1994 mentioning the fact that the ratio of 50:50 tax is payable by service provider and recipient which subsequently changed to 75:25 w.e.f. 20.06.2012 and then to 100% w.e.f. 01.04.2015. The assessee was required to pay 75% of tax but the assessee paid in the ratio of 50:50. Therefore, it was violation of provisions of the Act. Further, it was argued that the credit was availed on the strength of photocopies of invoice which would not be allowed as per the CENVAT Credit Rules, 2004.

The Counsel of the assessee placed reliance on CBIC Circular No. 341/18/2004-TRU dated 17.12.2004. As far as the tax amount has been paid, the allegation that the service provider has paid tax under reverse charge in the ratio of 50:50 and not 75:25 cannot be constructed as shortage of payment of tax. Further, it was argued that the concept of reverse charge mechanism should not lead to double taxation. Reliance was placed on the decision of Bombay High Court and Punjab & Haryana High Court in the case of Commissioner of Central Excise, Goa V/s. Essel Propack Ltd., [(2015) 57 taxmann.com 52 (Bombay)]; Commissioner of Central Excise & Customs, Vadodara-II V/s. Steelco Gujarat Ltd., [(2013) 3 taxmann.com 388 (Gujarat); Commissioner of Central Excise V/s. Ralson India Ltd., [(2007) 6 STT 134].

The Court held that as regards to the double taxation, there is no exception. Further, it was held that whatever may be the ratio, the tax adequately reached the hands of Government’s Ex-chequer. It was stated that merely because the provisions are not adhered to, the assessee cannot be held liable to pay double tax. Furthermore, as far as availment of credit on the basis of photocopies of the invoices is concerned, it was held that as the assessee is ready to produce original invoices, the case was remanded back to the adjudicating authority for reviewing the facts.

The above decision is beneficial to the business community wherein it was held that the assessee cannot be demanded double tax on the same transaction merely on the grounds that the liability was not discharged in the proportion of reverse charge as stipulated in the Law. The subject matter is supported by various favourable Judicial pronouncements such as Lilason Breweries v. CCE [(2010) 24 STT 279 (CESTAT SMB)], CCE v. Om Tea Company (2012) 36 STT 91 (CESTAT) and Umasons Auto Compo Pvt. Ltd. v. CCE 2017 (47) S.T.R. 377 (Tri. - Mumbai), wherein it is held that demand of tax again on the same service is not sustainable. It is worth noting that the ratio of the decision can be made applicable even in GST regime wherein tax has been discharged by the service provider whereas the statue casted responsibility to pay tax on the recipient of goods or services under reverse charge mechanism.

Comments

GST Update No 206 on double taxation under RCM

Post a Comment

Query