2025 (5) TMI 573 - AT - Service Tax

Time barred SCN or not - suppression of facts or not - liability of appellant to discharge service tax under the reverse charge mechanism (RCM) on Manpower Recruitment Services and Rent-a-Cab Services despite the service providers having already paid service tax - HELD THAT - The learned Commissioner (Appeals) has considered each of the demands raised in the show cause notice and has given categorical reasoned findings based on the law and the case laws. Learned Commissioner (Appeals) finds that extended period is not invokable as no evidence has been adduced in the show cause notice to substantiate the allegation of suppression of facts which intend to evade payment of service tax; the entire demand was raised on the basis of records maintained by the appellant which were provided to the audit. The learned Commissioner (Appeals) has rightly observed relying on the Hon ble Supreme Court s decision in the case of Chemphor Drugs 1989 (2) TMI 116 - SUPREME COURT that mere inaction are failure on the part of the assessee does not suffice to invoke the extended period; a conscious are deliberate withholding the information which the appellants were aware of was required. As the appeal fails squarely on limitation the other issues on merit do not require any discussion and findings more so when we have endorsed findings of the impugned order in this regard. The appeal is rejected.

Summary

The core legal issues considered by the Tribunal in this appeal are as follows:

1. Whether the show cause notice issued to the appellant was barred by limitation, specifically whether the extended period for issuance of notice could be invoked on grounds of suppression or evasion of service tax.

2. Whether the appellant was liable to discharge service tax under the reverse charge mechanism (RCM) on Manpower Recruitment Services and Rent-a-Cab Services, despite the service providers having already paid service tax.

3. Whether the demand of service tax raised on Manpower Recruitment Services and Rent-a-Cab Services was sustainable on merits, including the classification of services and the applicability of reverse charge provisions.

4. Whether the appellant was entitled to avail Cenvat credit on Rent-a-Cab Services and whether the denial of such credit was justified.

5. Whether the appellant wrongly availed and utilized Cenvat credit of Swachh Bharat Cess (SBC) and the consequences thereof, including penalty and interest.

Issue 1: Limitation and Extended Period of Notice

The legal framework governing limitation for issuance of show cause notices under the Finance Act, 1994, requires that extended period can be invoked only if there is evidence of suppression of facts or intention to evade tax. The Tribunal referred to the Supreme Court's decision in Chemphor Drugs (1989), which held that mere failure or inaction by the assessee does not justify invoking extended limitation; rather, there must be conscious withholding of information.

The Commissioner (Appeals) and the Tribunal relied on several precedents including decisions in Devraj Luxury Hotels Pvt. Ltd and International Foundation for Research and Education, which held that extended limitation cannot be invoked when the demand arises solely from audit records without evidence of suppression.

The Tribunal found no evidence of suppression or evasion by the appellant and held that the show cause notice was barred by limitation. This conclusion alone was sufficient to set aside the impugned order and demand.

Issue 2: Liability to Pay Service Tax Under Reverse Charge Mechanism on Manpower Recruitment Services

The relevant legal provisions include Section 65(68) and Section 105(k) of the Finance Act, 1994, which define and categorize "Manpower Recruitment or Supply Agency" services as taxable services. Notification No. 30/2012-ST dated 20.06.2012 prescribes the reverse charge mechanism on such services.

The appellant contended that the demand was raised beyond the scope of the show cause notice, confusing Manpower Recruitment Agency Service with Manpower Supply Services. The Tribunal clarified that both services were covered under a single head and taxable under the same provisions during the relevant period.

On the contention that the appellant was not liable to pay service tax under RCM because the service providers had already paid the tax, the Tribunal observed that the appellant produced invoices and agreements from several service providers showing that service tax was charged and paid by the providers, and the appellant had taken Cenvat credit accordingly.

The department failed to provide evidence that service tax was unpaid by the providers or that the appellant's credit was wrongly taken. The Tribunal held that demanding service tax again from the appellant would amount to double taxation, which is impermissible under law.

The Tribunal relied on the decision in Transpek Silox Industries (P) Limited, where it was held that if the service recipient has discharged the entire service tax, demanding the same tax from the service provider results in double taxation and is unsustainable.

Accordingly, the demand of Rs. 58,27,288 on manpower recruitment services was set aside as legally unsustainable.

Issue 3: Demand of Service Tax on Rent-a-Cab Services under Reverse Charge

The appellant argued that the demand included expenses booked as reimbursement for diesel/petrol and other incidental charges, which were not rent-a-cab services. Further, the service provider, M/s Mehra Ram Chaudhary, had charged and collected service tax on these invoices.

The Tribunal found that the adjudicating authority did not properly consider these contentions and merely confirmed the demand mechanically without evidence to disprove the appellant's claim that service tax was already paid by the service provider.

Supporting invoices submitted by the appellant showed service tax was assessed and charged by the service provider. The Tribunal emphasized the Board's Circular dated 17.12.2004, which states that service tax paid by one liable person should not be charged again from another to avoid double taxation.

The Tribunal also cited the CESTAT Mumbai decision in Umasons Auto Component Pvt. Limited, which held that once service tax is paid by the service provider, it cannot be demanded again from the recipient under reverse charge.

The Tribunal further criticized the adjudicating authority for failing to consider that certain expenses reimbursed by the appellant did not fall under taxable rent-a-cab services and for issuing a vague and non-speaking order, contrary to Board Circular No. 1053/02/2017-CX dated 10.03.2017, which requires reasoned adjudication.

Consequently, the demand of Rs. 6,20,560 on rent-a-cab services was held unsustainable due to double taxation and lack of supporting evidence.

Issue 4: Denial of Cenvat Credit on Rent-a-Cab Services

The show cause notice proposed denial of Cenvat credit of Rs. 5,73,464 on two grounds: (a) credit taken on invoices from M/s ND Saran where no Cenvat credit element was passed on, and (b) rent-a-cab service not being an input service under Rule 2(l) of the Cenvat Credit Rules (CCR).

The appellant demonstrated that Rs. 3,80,413 of the credit related to tax paid invoices from M/s Mehra Ram Chaudhary, which was a legitimate input service. The Tribunal held that since service tax was paid by the provider and credit taken by the appellant, demanding the same again would be double taxation and was unsustainable.

Regarding Rs. 1,93,051 credit taken on invoices from M/s ND Saran, the Tribunal found that the appellant had taken credit without paying service tax either by himself or the provider, making this portion of credit inadmissible. However, since the appellant paid the tax on reverse charge basis subsequently, the situation was revenue neutral and no intent to evade tax was found.

On the eligibility of rent-a-cab services as input services, the Tribunal relied on the CESTAT Mumbai decision in Jet Airways (I) Limited and the Punjab and Haryana High Court decision in Maruti Suzuki India Ltd., both holding that services used in business activities, including rent-a-cab for executives, qualify as input services eligible for credit under CCR.

Since no evidence was produced to show ineligibility of credit on rent-a-cab services, the denial of credit was held unsustainable.

Issue 5: Wrong Availment of Cenvat Credit of Swachh Bharat Cess (SBC)

The appellant had utilized credit of SBC amounting to Rs. 2,56,423, which was not admissible under the Rules. However, the appellant claimed to have done so under a bona fide belief of entitlement.

The Tribunal found no evidence of intent to evade tax and held that the extended period of limitation could not be invoked for the demand prior to October 2016. Accordingly, the demand for Rs. 1,46,316 (pertaining to the period October 2016 to June 2017) was upheld along with interest.

Penalty under Section 78 of the Act was held not imposable except a reduced penalty of Rs. 10,000 under Rule 15 of the Rules. The rest of the penalties were set aside.

Conclusions and Significant Holdings

The Tribunal upheld the impugned order of the Commissioner (Appeals) rejecting the revenue's appeal primarily on limitation grounds, holding that the extended period was not invokable in the absence of evidence of suppression or evasion.

On merits, the Tribunal endorsed the reasoning that demands raised on manpower recruitment and rent-a-cab services under reverse charge were unsustainable where service providers had already paid service tax, as this would lead to impermissible double taxation. The Tribunal stated:

"Demand on this count not sustainable... demanding 75% tax from appellant service provider amounting to double taxation, which is not permissible Demand on this count not sustainable."

The Tribunal emphasized the necessity of reasoned adjudication, criticizing the original adjudicating authority's mechanical confirmation of demands without examining evidence or addressing appellant's contentions.

Regarding Cenvat credit, the Tribunal clarified that input services used in business activities, including rent-a-cab services, are eligible for credit unless proven otherwise by the department. The Tribunal held that denial of credit without evidence was unsustainable.

On the wrongful availment of SBC credit, the Tribunal distinguished between bona fide mistakes and deliberate evasion, limiting the demand and penalty accordingly.

In sum, the Tribunal established the following core principles:

• Extended limitation period for service tax demands cannot be invoked without evidence of suppression or evasion.
• Reverse charge liability does not arise if the service provider has already paid service tax, to avoid double taxation.
• Adjudication orders must be speaking, reasoned, and based on evidence, addressing all contentions raised.
• Cenvat credit is admissible on input services legitimately used in business unless disproved by evidence.
• Penalties should be commensurate with the nature of the default, distinguishing bona fide errors from deliberate evasion.

The appeal by the Revenue was rejected on these grounds.