No RCM can be demanded if service provider paid Tax under Forward Charge: CESTAT

The Tribunal said you cannot demand service tax under the Reverse Charge Mechanism (RCM) if the service provider already paid the whole tax amount. Doing so would mean taxing the same payment twice, which doesn’t make sense. But since the appellant could not clearly show that 100% of the tax was actually paid by the service provider, the Tribunal sent the case back to check the facts. Any tax demand will stick only if there’s still outstanding tax.

Case Facts

M/s Arunachala Logistics (P) Ltd offered clearing and forwarding agent services as well as goods transport agency (GTA) services. The Department noticed they received security services from non-corporate providers. According to Section 68(2) of the Finance Act, 1994 and Notification No. 30/2012-ST, The company was supposed to pay 75 % of the service tax under RCM. The Department raised a tax demand, claiming the company hadn’t fulfilled its RCM obligations.

The company argued that its vendors already paid the full service tax and that the company reimbursed them for it. So, in their view, the government didn’t lose any revenue and there’s no reason to demand the tax again.

Issue

Can the Department demand service tax under RCM from the service recipient if the provider has already paid the full tax for the same service?

Tribunal Observation

The Tribunal pointed out that if the service provider already paid the entire service tax, demanding it again from the recipient would mean taxing the same transaction twice. The law says the tax should be paid in a specific proportion under RCM, but if one party has paid the whole thing, there’s no reason to double up. Still, it’s up to the appellant to prove that the service provider paid 100% of the tax.

Here, the appellant just did not manage to proven even with the paperwork that the service provider covered the full tax amount or that the company reimbursed them. So, a proper fact check was needed.

Judgement

The Tribunal sent the case back to the Original Adjudicating Authority to verify everything. If it turns out the service provider already paid the full service tax, the demand against the company gets dropped. If they did not the tax demand plus interest stands for whatever Is unpaid. The Tribunal also said the Department was right to invoke the extended period and impose a penalty under Section 78, but the demand would need recalculation once the facts are clear.