2024 (11) TMI 592 - AT - Service Tax

Liability to pay Service Tax under reverse charge mechanism basis in terms of Rule 2 (1) (d) (EE) of the Service Tax Rules, 1994 read with Notification No. 30/2012-ST dated 20.06.2002 - whether the services provided by M/s IRIS Engineering Co. can be considered as service provided by one of the director of the appellant company? HELD THAT - We are of the opinion that it is a settled preposition that sole proprietorship concerned is not a separate legal entity from proprietor for the purpose of taxation and for other legal purposes. In case of ANILKUMAR MAHESARIA 2007 (12) TMI 175 - HIGH COURT DELHI has held that proprietor and proprietorship concerned are not separate entities and similar view has also been held in Commissioner of Customs CSI AIRPORT, MUMABI Vs. GYANCHAND JAIN 2015 (9) TMI 510 - BOMBAY HIGH COURT We find that there is no difference between the proprietorship firm namely M/s IRIS Engineering Co. and Shri Chittranjanbhai D. Badheka and therefore, the provisions of the Rule 2 (1) (d) (EE) of Service Tax Rules, 1994 read with terms of Notification No. 30/2012-ST dated 20.06.2012 will be applicable and the party should have discharged the Service Tax liability on reverse charge basis on the services provided by the one of its Directors. We find that in this case the question of revenue neutrality raised by the learned Advocate is relevant as the Service Tax payable on the services received from one of the directors of the firm would have been available to the appellant as CENVAT Credit and therefore, we find that the situation becomes revenue neutral. We also find that there is no loss of the revenue in this particular case. As relying on Messers John Energy Limited 2018 (11) TMI 1389 - CESTAT AHMEDABAD we held that the situation in the present case is similar to that of above Matter of revenue neutrality. We also find that there is no loss to the revenue because of Revenue neutral situation. Hence, we follow the above mentioned decision of this Tribunal and hold that impugned order in appeal is without any merit and accordingly, we set aside the same. Assessee appeal allowed.

Summary

Issues:
1. Liability of the appellant to pay Service Tax under reverse charge mechanism for services received.
2. Whether the demand for Service Tax is barred by limitation.
3. Revenue neutrality in the case.

Analysis:
1. The appellant, engaged in manufacturing control panels, received "Engineering & Consultancy Service" from a proprietorship concern of one of its directors. The department alleged that since the proprietorship concern did not have a separate PAN number, the appellant should have discharged the Service Tax liability. The appellant contended that the services were provided by the proprietorship concern and not the director, thus not falling under the specified rule. The Tribunal held that the proprietorship concern and the director were not separate entities for taxation purposes, and the Service Tax liability should have been discharged by the appellant under reverse charge mechanism.

2. The appellant argued that the demand for Service Tax was barred by limitation as the department had regularly audited their financial records, and the demand was based solely on those records. The Tribunal found that the demand was not sustainable as there was no suppression of facts, and the extended period of limitation under Section 73(1) proviso of the Finance Act, 1994 was not applicable.

3. The appellant claimed that the issue was revenue neutral as they could have availed CENVAT Credit if the Service Tax liability fell on them. The Tribunal agreed that the situation was revenue neutral, citing previous decisions, and found that there was no loss of revenue. Therefore, the demand for the extended period was set aside, and the penalty, if any, was also waived due to the lack of malafide intention on the part of the appellant. The Tribunal concluded that the impugned order in appeal was without merit and set it aside, allowing the appeal in favor of the appellant.