Only Service Recipient, Not Service Provider, Can Claim Credit For Service Tax Paid Under Reverse Charge Mechanism: CESTAT

The Bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that “……so long as the service tax is paid on a taxable service and such taxable service is an input service, the service recipient can take credit. There is no provision for the service provider to take credit of the service tax paid on its output service……..”

The assessee/appellant provided services to M/s Jabalpur Garment & Fashion Design Cluster Association but had not paid the requisite service tax. The service recipient indicated it had paid 50% of the service tax under the reverse charge mechanism, as required by law.

A show cause notice was issued to the assessee, demanding service tax for the period 2012-2013. This amount represented 50% of the service tax owed by the assessee, which had not been paid.

The demand was confirmed by the Assistant Commissioner. Aggrieved by the decision of Assistant Commissioner the assessee filed an appeal to the Commissioner (Appeals) which was dismissed. The assessee has challenged the order passed by the Commissioner (Appeals) before the Tribunal.

The assessee contended that the amount was deducted “by them from all the bills”. It was responsibility of the service recipient to pay the entire amount of service tax and the assessee is not liable at all. The assessee had not received service tax amount from the service recipient.

The bench observed that in respect of the services rendered by the assessee 50% of the service tax had to be paid by the service recipient, which it did. The assessee, as service provider, was required to pay the remaining 50% of the service tax, which it had not. If service tax is paid on a service which is an input service for a taxable service rendered or a dutiable good manufactured the service recipient or manufacturer can take CENVAT credit of the service tax paid.

“It does not matter whether the service provider paid the service tax or the service recipient paid the service tax under reverse charge mechanism. So long as the service tax is paid on a taxable service and such taxable service is an input service, the service recipient can take credit. There is no provision for the service provider to take credit of the service tax paid on its output service. Even if service tax was paid under reverse charge mechanism by the service recipient, it is the service recipient who can take credit of the tax so paid and not the service provider,” added the bench.

The bench agreed with the observation of Commissioner (Appeals) that the service tax liability does not get extinguished simply because the service recipient had not reimbursed the service tax component to the assessee.

In view of the above, the Tribunal dismissed the appeal.

Counsel for Appellant/ Assessee: Himanshu Khemuka

Counsel for Respondent/ Department: Rajeev Kapoor

Case Number: SERVICE TAX APPEAL NO. 50325 OF 2019

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