Some interested recent case laws relating to reverse charge mechanism are discussed as below:
Whether service recipient?
The service tax recipient is liable to pay the service tax. Other persons are not liable to pay service tax. The onus is on the part of the department to prove that the person alleged for nonpayment of service tax under reverse charge mechanism is the actual service recipient.
In ‘Greenply Industries Limited V. Commissioner of Central Excise, Jaipur- I’ – 2015 (12) TMI 80 – CESTAT NEW DELHI the appellants are exporters. They receive the export proceeds through ING VYSYA Bank. The foreign bank through which the payment has given channelized charged some amount from the appellant’s bank ING VYSYA Bank which in turn recovered the same from the appellant. The Tribunal held that no documents have been produced showing that foreign bank has charged any amount from the appellant directly. The impugned order clearly indicates that it is the ING VYSYA Bank paid the charges to the foreign bank. The appellant cannot be treated as service recipient and no service tax can be charged from them under Section 66A.
Liability of service tax
In ‘P.C. Joshi V. Union of India’ – 2014 (12) TMI 595 – BOMBAY HIGH COURT the High Court held thatNotification No.30/2012, dated 20.06.2012 proceeds to notify that the taxable service and the extent of service tax payable thereon by the person liable to pay service tax for the purpose of Section 68 (2). All that it states is that the taxable services provided or agreed to be provided by an Appellate Tribunal or are individual Advocate or Firm of Advocate by way of support services to any business entity located in the taxable territory are liable to pay service tax. However in respect of legal services, the recipient of services or service receiver has to bear the brunt and will pay the tax at 100%.
In ‘Suryalakshmi Cotton Mills Limited V. Commissioner of Service Tax, Hyderabad’ – 2009 (5) TMI 372 – CESTAT, BANGALORE the appellants utilized the services of various overseas commission agents. They procured orders for the appellants and when the orders materialized into exports, the agents are paid commission based on the value of the orders generated. The Revenue proceeded against the appellant on the ground that the appellants are liable to service tax on the amount paid by them to the service provider. The Tribunal held that Reverse charge mechanism came into effect only from 18.04.2006 with the introduction of Section 66A of Finance Act, 1994 for services rendered outside India. The period of dispute is from 01.01.2005 to 30.11.2005. The Tribunal set aside the demand.
In ‘Kingfisher Airlines P. Limited V. Commissioner of Service Tax, Mumbai’ – 2014 (11) TMI 503 – CESTAT MUMBAI the money lender BNP Paribas has secured the loan amount lent to appellants from COFACE France and have secured their money they have paid insurance guarantee to COFACE France. When these facts are clear, the Tribunal held that the service receiver is BNP Paribas and the service provider is COFACE, France. The appellant is only the beneficiary of the transactions held between BNP Paribas and COFACE, France. As the appellant is neither service provider nor service recipient, the appellant is not liable to pay service tax under reverse charge mechanism.
The service tax paid by the service recipient may take credit on the service tax paid on RCM if such service is an input service for providing output service or manufacturing of goods, against the payment of tax/duty.
In ‘Lupin Limited V. Commissioner of Central Excise & Service Tax (LTU)’ – 2014 (1) TMI 55 – CESTAT MUMBAI the appellant as a service recipient paid service tax and availed CENVAT for the following:
- Banking & Financial Services by foreign banks for collecting and remitting the sale proceeds from the foreign countries;
- Commission paid to foreign agent for obtaining orders for their products abroad;
- Sales promotion, advertisements, promotional activities which are outsourced abroad.
The Adjudicating Authority denied the credit in respect of banking and financial services and the business auxiliary services on the ground that the same are not in relation to manufacture of goods. The Tribunal held that the appellant paid the service tax as recipient of service under reverse charge mechanism in respect of banking and financial services and business auxiliary services. There is no evidence on record to show that these services are not in relation to the goods manufactured and exported by the appellant. The Tribunal allowed the appeal and set aside the order.
In ‘Commissioner of Central Excise & Service Tax (LTU), Chennai V. Axles India Limited’ – 2015 (1) TMI 505 – CESTAT CHENNAI the assessee is a 100% EOU manufacturing and exporting rear axles housing. The assessee availed the services of overseas provider to carry out the quality control activity on rear axles housing at buyer’s premises. The assessee paid service tax as recipient of service. The Revenue contended that the services rendered by overseas agent are not covered under the definition of ‘input service’. The Tribunal held that the department interpreted categories of definition by dividing into four relating to manufacture of goods and activities relating to clearance of goods etc., The assessee engaged overseas service provider to carry out activities such as removing rust developed during transit, deburring of certain machined area of axles and cross checking of dimensions of buyer’s premises at USA. The activities carried out surely related to meeting specifications and quality control of the axle housings and in relation to business. The assessee is eligible for credit of input service tax paid under reverse charge mechanism.
In ‘Monarch Catalyst Private Limited V. Commissioner of Central Excise, Thane-I’ – 2014 (7) TMI 158 – CESTAT MUMBAI the appellants are the exporter of goods. While exporting they are availing the services of certain commission agents located abroad. Certain amounts are paid to such commission agents and they are paying service tax on RMC. They had been availing CENVAT credit of such tax paid. Their unit was audited and the audit officers suggested that they should reverse the CENVAT credit and avail the exemption under Notification No. 18/2009-ST, dated 07.07.2009. The appellants reversed the credit and filed the refund claim. In the refund claim the appellants noted wrong notification. The order was passed without issuing show cause notice, without giving personal hearings. The Adjudicating Authority further held that the assessee has to claim exemption from payment of service tax. The Tribunal remanded the matter back to the original authority to consider as if the claim was made under Notification No. 18/2006-ST. If the appellants are eligible for refund the refund will be granted. No interest will be payable for the intervening period since the refund is claimed under the wrong notification.
In ‘Piramal Health care Limited V. Commissioner of Central Excise & Service Tax, Indore’ – 2015 (5) TMI 211 – CESTAT NEW DELHI the appellant is engaged in the activity of manufacturing the bulk drugs and obtaining registration under the category of GTA service. During this period the appellants have both membership of PDA located outside. In that activity the appellants were required to pay service tax under RCM. The appellant failed to pay service tax under RCM. Therefore the proceedings initiated. The Tribunal held that the appellant was required to pay service tax under RCM. After that they paid the service in time, same was available to them as CENVAT credit. By not paying the service tax in time, the appellant has already suffered interest and have not taken the credit of service tax paid. Therefore it is a situation of revenue neutral. The Tribunal set aside the penalties imposed.