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2025 (4) TMI 1338 - AT - Service TaxExtended period of limitation - liability to pay service tax under the reverse charge mechanism on the supply of manpower services received from sub-contractors as per N/N. 30/2012-ST - revenue neutrality - HELD THAT - Merely because the appellant could have availed CENVAT credit the liability to pay service tax under the reverse charge mechanism does not get extinguished. However as far as the remedy available to the Revenue to recover service tax not paid or short paid under section 73 of the Finance Act is concerned it has a limitation of time. The normal period of limitation under section 73 was one year from 1994 up to 28.05.2012. From 28.05.2012 up to 14.05.2016 the limitation was 18 months. From 14.05.2016 the limitation was increased to 30 months. The show cause notice was issued on 28.01.2016 and the limitation was 18 months. The period for which the show cause notice was issued is July 2012 to December 2013. The show cause notice was clearly issued beyond 18 months on 28.01.2016. What is evident from this proviso is that the intent to evade must be established in order to invoke extended period of limitation. This is a revenue neutral case where the appellant had to pay service tax with one hand (if the Revenue s contention is accepted) but it could have immediately availed CENVAT credit so paid under reverse charge mechanism. Therefore there can be no intention to evade payment of service tax in this case. Therefore extended period of limitation could not have been invoked and it was wrongly invoked in the present case. The entire demand therefore is clearly barred by limitation and hence the impugned order cannot be sustained. Conclusion - The intent to evade must be established in order to invoke extended period of limitation. This is a revenue neutral case where the appellant had to pay service tax with one hand but it could have immediately availed CENVAT credit so paid under reverse charge mechanism. Therefore there can be no intention to evade payment of service tax in this case. The impugned order is set aside and the appeal is allowed.
The core legal questions considered by the Tribunal in this appeal are:
1. Whether the appellant was liable to pay service tax under the reverse charge mechanism on the supply of manpower services received from sub-contractors, as per Notification No. 30/2012-ST. 2. Whether the appellant's failure to pay service tax under reverse charge was barred by limitation, considering the periods prescribed under Section 73 of the Finance Act and the applicability of extended limitation period. 3. Whether the extended period of limitation under the proviso to Section 73(1) could be invoked in the absence of intent to evade payment of service tax. Issue-wise Detailed Analysis Issue 1: Liability to pay service tax under reverse charge mechanism on manpower supply services The relevant legal framework comprises Section 66 and Section 68(2) of the Finance Act, 1994, and Notification No. 30/2012-ST dated 20.06.2012. Section 66 imposes service tax liability on the service provider, but Section 68(2) empowers the Central Government to notify services where the liability to pay service tax is shifted wholly or partly to the service recipient. The Notification at Sr. No. 8 specifies that for services by way of supply of manpower, 25% of service tax is payable by the provider and 75% by the recipient. The Tribunal noted that the appellant received manpower recruitment or supply agency services from sub-contractors and paid approximately Rs. 6.85 crores to them. The Revenue contended that these services attracted reverse charge liability on 75% of the value, which the appellant failed to discharge. The appellant argued that the sub-contractors were not manpower suppliers but contractors for work, and no service tax was charged by them. The appellant did not furnish agreements or contracts to clarify the nature of services, providing only ledger accounts showing payments. The show cause notice demanded service tax on 75% of the amounts paid under reverse charge, along with interest and penalties. The Tribunal acknowledged the Revenue's contention that the appellant was the service recipient liable to pay service tax on manpower supply services under reverse charge. It also noted that the appellant could have availed CENVAT credit of the service tax paid, rendering the transaction revenue neutral. However, the Tribunal did not finally decide on the merits of this issue, as it found it unnecessary to do so after addressing limitation. Issue 2: Limitation for recovery of service tax under Section 73 of the Finance Act Section 73 of the Finance Act prescribes the limitation period for issuing show cause notices for recovery of service tax not paid or short paid. The limitation period has varied over time:
The show cause notice in this case was issued on 28.01.2016, covering the period July 2012 to December 2013. The limitation period applicable then was 18 months. The Tribunal observed that the show cause notice was issued beyond 18 months from the end of the relevant period, thus barred by limitation. Issue 3: Applicability of extended limitation period under proviso to Section 73(1) The proviso to Section 73(1) allows issuance of show cause notice within 5 years if the non-payment or short payment of service tax was due to:
The Tribunal emphasized that the extended period applies only if there is an intent to evade payment of service tax. It reasoned that since the appellant could have availed CENVAT credit for the service tax paid under reverse charge, the transaction was revenue neutral and no intention to evade tax existed. Therefore, the extended limitation period could not be invoked. The Tribunal concluded that the entire demand was barred by limitation and the invocation of extended limitation was erroneous. Significant Holdings The Tribunal held: "The intent to evade must be established in order to invoke extended period of limitation. This is a revenue neutral case where the appellant had to pay service tax with one hand but it could have immediately availed CENVAT credit so paid under reverse charge mechanism. Therefore, there can be no intention to evade payment of service tax in this case. Therefore, extended period of limitation could not have been invoked and it was wrongly invoked in the present case." Consequently, the Tribunal set aside the impugned order and allowed the appeal on the ground of limitation without adjudicating the merits.
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