2025 (6) TMI 850 - AT - Service Tax

Failure to pay service tax on the value of services received - Royalty paid to foreign service providers - Appellant had failed to obtain registration for the intellectual property service category and had not furnished any returns to the jurisdictional Service tax authority - reverse charge mechanism - suppression of facts or not - extended period of limitation - HELD THAT - The appellant have deposited the service tax in the account of Delhi Commissionerate instead of Haldia Commissionerate. This remittance of service tax in a difference service tax registration of the same assessee is a matter of internal adjustment and the appellant cannot be saddled with the demand of service tax again. Similarly the issue relating to accounting code cannot be a reason to demand Service tax again. The service tax paid by the Hqrs can be adjusted by the authorities against the service tax liability if any of the appellant company at Haldia - the payment made by head office under different registration number cannot be demanded from the Appellant s Haldia Unit and if at all there is discrepancy of different registration of head office the department could have adjusted service tax paid by the head office against the service tax due of appellant s Haldia unit. Similarly the issue relating to payment under accounting code Scientific and Technical Consultancy Service can be adjusted against the accounting code Intellectual Property Service . As per Section 66A of the Finance Act 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules 1994 the service recipient is liable to pay service tax under reverse charge mechanism. However when the service tax has already been paid by one unit of the same legal entity demanding it again from another unit amounts to double taxation on the same transaction which is impermissible in law. It is settled that merely because the service tax paid under different registration but by the same company cannot tantamount to non- payment of service tax. The law does not permit the taxation authority to recover the tax again where the tax on the same taxable event has already been paid albeit under a different head or accounting code. Hence the demand of service tax which was already paid cannot be made twice. Accordingly the demand of service tax confirmed in the impugned order is not sustainable and hence the same is set aside. Time limitation - HELD THAT - There is no suppression of facts or intention to evade payment of service tax in the present case as the service tax has already been paid by RHQ New Delhi. Therefore the extended period of limitation under Section 73(1) of the Finance Act 1994 is not invocable in this case. Accordingly the demand confirmed in the impugned order is not sustainable on the ground of limitation also. Penalties - HELD THAT - Since the demand of service tax is not sustainable the question of demanding interest under Section 75 and imposing penalties under Section 76 77 and 78 of the Finance Act 1994 does not arise and accordingly the same imposed in the impugned order are set aside. Conclusion - i) The demand of service tax which was already paid cannot be made twice. Accordingly the demand of service tax confirmed in the impugned order is not sustainable and hence the same is set aside. ii) The extended period of limitation under Section 73(1) of the Finance Act 1994 is not invocable in this case. iii) Since the demand of service tax is not sustainable the question of demanding interest under Section 75 and imposing penalties under Section 76 77 and 78 of the Finance Act 1994 does not arise and accordingly the same imposed in the impugned order are set aside. The impugned order is set aside - Appeal allowed.

Summary

The core legal questions considered in this appeal are:

• Whether the appellant is liable to pay service tax under the reverse charge mechanism on intellectual property services received from foreign service providers, despite the payment of service tax by another unit of the same legal entity.
• Whether the demand for service tax raised on the appellant's Haldia Refinery unit can be sustained when the service tax has already been paid by the Refineries Headquarters (RHQ), New Delhi unit of the same company.
• Whether the extended period of limitation under Section 73(1) of the Finance Act, 1994 is invocable in the facts of this case.
• Whether interest and penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994 are justified when the primary demand of service tax is not sustainable.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax under Reverse Charge Mechanism on Intellectual Property Services from Foreign Providers

The legal framework involves Section 65(55b) of Chapter V of the Finance Act, 1994, which defines "intellectual property service," and Section 66A read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, which mandates the service recipient to pay service tax under the reverse charge mechanism for services received from foreign service providers.

The Show Cause Notice (SCN) alleged that the appellant had received intellectual property services from foreign vendors and had failed to pay service tax on such services for the period April 2006 to March 2007. The department demanded service tax along with interest and penalties.

The appellant admitted receipt of services but contended that service tax was already paid by the Refineries Headquarters (RHQ) in New Delhi, which is part of the same legal entity. The invoices were raised in the name of the New Delhi office, and payments, including service tax, were made centrally from there.

The Court observed that Indian Oil Corporation Limited is a single legal entity with multiple units, including the Haldia Refinery and RHQ, New Delhi. The centralized procurement model meant that the New Delhi unit paid service tax on behalf of all refineries, including Haldia.

Relevant precedents cited include decisions from various High Courts and Tribunals, notably the Gujarat High Court in Devang Paper Mills Ltd. and Falah Steel, and CESTAT decisions in Welspun Corp, Tata Metaliks, Sahara India TV Network, and Neyvili Lignite Corporation Ltd. These judgments establish that payment of service tax by one unit of a single legal entity cannot be treated as non-payment for another unit of the same entity.

The Court reasoned that demanding service tax again from the Haldia unit, when it was already paid by the New Delhi unit, would amount to double taxation, which is impermissible. The difference in service tax registration numbers or accounting codes does not negate the fact of payment by the same legal entity.

Accordingly, the Court held that the demand of service tax confirmed in the impugned order is not sustainable.

2. Applicability of Extended Period of Limitation under Section 73(1)

Section 73(1) of the Finance Act, 1994 allows for an extended period of limitation for recovery of service tax where there is suppression of facts or intention to evade tax.

The appellant submitted there was no suppression or intention to evade, as the service tax had already been paid by the RHQ, New Delhi. The department accepted the payment, and the appellant provided a Chartered Accountant's certificate and departmental certification to that effect.

The Court found no evidence of suppression or evasion and thus held that the extended period of limitation under Section 73(1) was not invocable. The demand confirmed on limitation grounds was therefore unsustainable.

3. Interest and Penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994

Since the primary demand of service tax was set aside, the Court held that the consequential imposition of interest and penalties could not be sustained. The demand for interest and penalties was accordingly set aside.

Significant Holdings:

The Court held:

"The appellant have deposited the service tax in the account of Delhi Commissionerate instead of Haldia Commissionerate. This remittance of service tax in a difference service tax registration of the same assessee is a matter of internal adjustment and the appellant cannot be saddled with the demand of service tax again."

"The service tax paid by the Hqrs can be adjusted by the authorities against the service tax liability, if any, of the appellant company at Haldia. The appellant's Delhi unit is not a separate entity as the same is part of a single entity i.e. Indian Oil Corporation Ltd."

"Demanding it again from another unit amounts to double taxation on the same transaction, which is impermissible in law."

"Merely because the service tax paid under different registration but by the same company, cannot tantamount to non-payment of service tax. The law does not permit the taxation authority to recover the tax again where the tax on the same taxable event has already been paid, albeit under a different head or accounting code."

"There is no suppression of facts or intention to evade payment of service tax in the present case, as the service tax has already been paid by RHQ, New Delhi. Therefore, the extended period of limitation under Section 73(1) of the Finance Act, 1994 is not invocable in this case."

In conclusion, the Court set aside the impugned order confirming the demand of service tax, interest, and penalties, holding that the service tax was already paid by the RHQ, New Delhi unit of the same legal entity and that there was no basis for invoking extended limitation or imposing penalties.