2016 (11) TMI 1291 - AT - Service Tax

Demand of the amount payable under reverse charge method recovered from the service provider - insurance auxiliary service - demand of the amount of that tax which has, allegedly, been recovered by the appellant from the agent - section 73A of Finance Act, 1994 - reverse charge mechanism - Held that - The appellant has paid the tax on commission paid to agents on reverse charge basis and appellant is, under CENVAT Credit Rules, 2004, entitled to take credit of such tax paid. Contribution, partial or entire, to the tax liability in an agreement with the provider of the service is not forbidden by law. To the extent that the contributor has not ventured to avail credit of such contributions, there is no detriment to public revenue. And to the extent that the appellant has not deprived the provider of the service of any amount in excess of the tax deposited by the appellant, there can be no substance to the allegation that appellant has contravened section 73A of Finance Act, 1994 - appeal allowed - decided in favor of appellant-assessee.

Issues Involved:

1. Demand for recovery of service tax allegedly collected in excess by the appellant from its agents.
2. Applicability of Section 73A(2) of the Finance Act, 1994.
3. Comparison with Section 11D of the Central Excise Act, 1944.
4. Legality of recovering service tax from agents under reverse charge mechanism.
5. Eligibility for CENVAT Credit under CENVAT Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Demand for recovery of service tax allegedly collected in excess by the appellant from its agents:

The appellant, a registered service tax provider, was accused of collecting ?93,83,99,657/- as service tax from its agents, which was supposed to be paid by the appellant itself under the reverse charge mechanism. The service tax authorities claimed that this amount should be credited to the Central Government as per Section 73A of the Finance Act, 1994.

2. Applicability of Section 73A(2) of the Finance Act, 1994:

The adjudicating authority's order was based on the premise that Section 73A(2) of the Finance Act, 1994 mandates the recovery of any amount collected as service tax but not paid to the government. The appellant argued that Section 73A(2) and Section 73A(1) are mutually exclusive, and the excess collection, if any, should be recoverable under Section 73A(1) only. The Tribunal found merit in this argument, noting that the adjudicating authority's reliance on Section 73A(2) was misplaced.

3. Comparison with Section 11D of the Central Excise Act, 1944:

The adjudicating authority had noted that Section 73A(2) of the Finance Act, 1994 has no parallel in Section 11D of the Central Excise Act, 1944. The Tribunal observed that the decisions cited by the respondent's counsel, which were based on Section 11D, were not entirely relevant to the present case. The Tribunal referred to the Supreme Court's interpretation of Section 11D in Mafatlal Industries Ltd v. Union of India, emphasizing that the excess amount collected as duty must be paid to the government only if it exceeds the duty already paid.

4. Legality of recovering service tax from agents under reverse charge mechanism:

The appellant, who pays commission to its agents, withheld 60.3% of the tax paid on a reverse charge basis, effectively recovering a portion of the tax liability from the service provider. The Tribunal noted that the appellant, as the recipient of the service, was responsible for paying the service tax to the government under the reverse charge mechanism. The Tribunal also referred to the Supreme Court's decision in Rashtriya Ispat Nigam Ltd v. Dewn Chand Ram Saran, which allowed the recovery of service tax dues from contractors under contractual obligations.

5. Eligibility for CENVAT Credit under CENVAT Credit Rules, 2004:

The appellant had paid the tax on commission paid to agents on a reverse charge basis and was entitled to take credit of such tax paid under the CENVAT Credit Rules, 2004. The Tribunal found that the appellant's partial or entire contribution to the tax liability in an agreement with the service provider was not forbidden by law. Since the appellant had not deprived the service provider of any amount in excess of the tax deposited, there was no contravention of Section 73A of the Finance Act, 1994.

Conclusion:

The Tribunal allowed the appeal and set aside the impugned order, concluding that the appellant had not contravened Section 73A of the Finance Act, 1994. The contractual obligation to reimburse the tax paid by the appellant was not considered as tax collected in any manner warranting recourse to Section 73A. The Tribunal emphasized that tax can only be collected in accordance with the law, and the appellant's actions were within the legal framework.

(Pronounced in Court)

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