Demand of Service Tax Invalid When Liability Already Discharged Under RCM: CESTAT Ahmedabad

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, in the case of Utility Labour Suppliers v. Commissioner of C.E.-Ahmedabad-II, ruled that service tax demands cannot be raised if the tax liability has already been discharged under the Reverse Charge Mechanism (RCM).

Case Overview

Case Title: Utility Labour Suppliers v. Commissioner of C.E.-Ahmedabad-II
Appeal No.: Service Tax Appeal No. 10780 of 2022-DB
Date of Judgment: November 26, 2024

Key Facts:

  1. The appellant, Utility Labour Suppliers, received a Show Cause Notice (SCN) dated April 23, 2021.
  2. The notice proposed a demand for service tax, alleging discrepancies between the gross value declared in ITR/Form 26AS and the ST-3 returns.
  3. The demand, affirmed in the Order-in-Original (Impugned Order) dated July 4, 2022, included service tax, interest, and penalties.

Tribunal Findings

  1. Service Tax Liability Discharged under RCM

As per Notification No. 30/2012-ST, amended by Notification No. 7/2015-ST, the recipient of manpower supply services is liable to pay service tax under RCM.

The pharma company (recipient) had already discharged the full service tax liability.

  1. Double Taxation Issue

The department erred by demanding service tax from the appellant, as this would lead to double taxation, which is against the law.

Ruling

The Impugned Order was set aside, and the demand of service tax from the appellant was quashed.

The tribunal clarified that no additional demand could be made when the tax liability is already settled by the recipient under RCM.

Key Takeaways

  1. RCM Compliance: Tax liability under RCM is non-negotiable and, once discharged, prevents further demand on the service provider.
  2. Avoidance of Double Taxation: The ruling reaffirms that duplicate tax demands are unsustainable.
  3. Notification Clarity: Notifications like 30/2012-ST play a critical role in determining tax responsibilities between providers and recipients.

This decision underscores the importance of adhering to tax regulations and ensuring transparent communication between service providers, recipients, and the tax authorities.

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