Whether service tax demand from service receiver sustainable when tax paid by service provider?

PJ/Case Law/2012-13/2042

Case:- IN RE: MENON PISTONS LTD.

Citation:- 2010 (18) S.T.R. 803 (Commr. Appl.)

Brief facts:-This is an appeal received from M/s. Menon Pistons Ltd., Kolhapur (hereinafter referred as the appellant) against Order-In-Original No. KOP-I/STC/ADJ/15/2008-09, dated 27-2-2009. The brief issue involved in the appeal is that the appellant, who is registered for payment of Service tax on transportation of goods by road, in terms of Notification No. 35/2004-S.T., dated 3-12-2004, availed services from M/s. Gati Ltd., M/s. Speedage Transports M/s. NECC Logistics Ltd., all three registered under ‘Courier Agency service’, M/s. Rahul Cargo, registered under ‘Cargo Handling Service’ and M/s. Ghatge Patil Transports Ltd., registered under ‘Goods Transport Agency’; that the SCN dated 20-6-2007 was issued to the appellant alleging that the appellant availed Goods Transport Agency (GTA in short) services from the above five service providers, but failed to discharge the Service tax in terms of above notification and accordingly, it was directed to show cause as to why an amount of Rs. 93,860/- and Education cess of Rs. 1,877/- should not be recovered under Section 73 of the Finance Act, 1994 (hereinafter referred as the Act) along with interest under Section 75 of the Act and penalty should not be imposed under Sections 76, 78 of the Act; that on adjudication, the demand raised in the SCN-cum-Demand Notice was confirmed along with interest, in addition to imposing equal penalty under Section 78 of the Act. Being aggrieved by the above order, the appellant has come up with the present appeal along with stay petition. That in this case, the dispute is of technical nature, in as much as the Department is contending that the Service tax would have been paid by the appellant instead of service providers and hence holding the appellant guilty of suppression of facts with malafide intention is unjust.

Appellant’s Contention:-The appellant submitted that that the Assistant Commissioner has refused to accept the appellant’s plea that the service providers have charged the Service tax from the appellant and hence there is no need to again recover the Service tax from the appellant. He further explained that it is not correct to ask the service receiver ( the appellant ) to pay the Service tax again to the Government and the appellant relies on the decision in the case of Invincible Security Services v. CCE - 2009 (13)S.T.R.185and Navyug Alloys Pvt. Ltd. v. CCE - 2009 (13)S.T.R.421 (T) = 2008 (89) RLT 776. He also added that the service providers (except M/s. Ghatge Patil Transports ) have classified the their services as ‘courier agency service’ or ‘cargo handling service’ and they have also charged the Service tax under ‘courier agency service’/‘cargo handling service’ and paid the Service tax to the Government and the department has accepted the same and therefore, it is well settled that the classification of inputs/input services cannot be changed at the receiver’s end the appellant’s end) as laid down by the Apex Court in the case of Sarvesh Refractories (P) Ltd. v. CCE - 2007 (218)E.L.T.488 (S.C.)and Tribunal’s decision in the case of Indusil Industries Ltd. v. CCE - 2008 (222)E.L.T.461. He stated that M/s. Ghatge Patil Transports Ltd. is also falling in Kolhapur Division and the practice of charging Service tax on freight recovered from the customers and paying the same to the Government is well known to the Department, which is not challenged by the department and hence, again directing the appellant to pay Service tax is not correct. Further he also stated that as contended by the appellant, when the Department has accepted the classification and the payment is made thereon, it is not open to the department again to re-classify the same at the receiver’s end. In the instant case, that except M/s. Ghatge Patil Transports Ltd., other service providers are registered either under ‘courier agency service’ or ‘cargo handling service’ which has been accepted by the Department and allowed those service providers to discharge Service tax under those service categories. Hence it is not open to the Department to change the classification as held by the Apex Court in the case of M/s. Sarvesh Refractors (P) Ltd. v. CCE & C supra. In respect of M/s. Ghatge Patil Transports Ltd., as rightly contended by the appellant, the practice of collecting the Service tax from the receiver and paying the same into the Government Account is known to the department and hence again asking the appellant to pay Service tax in terms of Notification No. 35/2004 is also not correct. Hence, on all the above grounds, directing the appellant to pay Service tax once again which is already discharged by the service providers, is not sustainable. Once the appellant is not liable to pay Service tax, the question of paying interest and penalty also do not arise.

Respondent’s Contention:-The respondent reiterated the findings of the lower authorities.

Reasoning of judgment:- Having gone through the case records including record of PH and citations relied upon by the appellant/advocate, carefully. After dispensing with pre-deposit, the Commissioner took the main appeal for final decision. The sole issue to be decided in the present appeal is that whether the appellant is liable to pay Service tax in terms of Rule 2(i)(v) of the Service Tax Rules 1994 towards services received from M/s. Gati Ltd., M/s. NECC Logistics Ltd., M/s. Speedage Transport - all Courier Agencies, M/s. Rahul Cargo - Cargo Handling Service and M/s. Ghatge Patil Transports - GTA service. As contended by the Commissioner, there is no dispute with regard to the payment of Service tax paid by the service providers. In fact, the Service tax was collected in their bills from the appellant only. In short, there is only a ‘technical error’ i.e. instead of Service tax being paid by the appellant, the same was paid by the service providers. In other words, the Service tax being the indirect tax, the same has to be collected from the appellant only (consumer). Accordingly, again demanding the same Service tax from the appellant would amount to ‘double taxation’. The decision of Hon’ble Delhi High Court in the case of Invincible Security Services v. CCE, Noida and the Tribunal’s decision in Navyug Alloys Pvt. Ltd. v. CCE & C, Vadodara supra, also squarely cover the issue on hand. The Hon’ble Tribunal Ahmedabad in the case of Navyug Alloys Pvt. Ltd. v. CCE & C, Vadodara has held that “once tax already paid on the services, it was not open to the Department to confirm the same against the appellant, in respect of the same services”. Further it has been held that “the Revenue has not refunded the Service tax paid by the transporter to them”. As stated above, the above case squarely covers the issue on hand. In view of the facts and circumstances, The Commissioner Appeals allow the appeal by setting aside the impugned OIO passed by the Assistant Commissioner, Central Excise, Kolhapur Division.

Decision:- Appeal Allowed.

Comment:- The crux of the case is that it is a thumb rule that service tax cannot be demanded twice for the same service. In the present case, although service tax liability was casted on the service recipient by the provisions of law, but as the service tax was paid by the provider of service which was ultimately collected by the service recipient, the revenue cannot again demand service tax from the service recipient. The payment of service tax by service provider when the liability was of service receiver is only a “technical lapse” and so the appeal was allowed.

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PJ/Case Law/2012-13/2042

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