2025-VIL-1090-CESTAT-CHE-ST
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SERVICE TAX CESTAT Cases

Service Tax – Misclassification of service, Change in classification of service, Manpower Supply Service, Works Contract Service - Appellant, a construction service provider, classified its services as 'manpower supply' for one period and 'works contract' for another, paying its share of service tax as per the partial payment mechanism under Notification No. 30/2012-ST. The service recipient also paid its corresponding share under the Reverse Charge Mechanism (RCM), a fact evidenced by a Chartered Accountant's certificate - Department, upon reclassifying the service, sought to recover the entire service tax amount from the appellant again, disregarding the tax already paid by the service recipient under RCM - Whether service tax can be demanded again from the service provider on the ground of misclassification, when the total tax liability on the transaction has already been discharged jointly by the service provider and the service recipient under the RCM – HELD - When the entire tax due has reached the exchequer through the combined payments of the service provider and the service recipient under the reverse charge mechanism, the service provider cannot be called upon to make the payment once over. The principle, as clarified by the CBEC is that the RCM should not lead to double taxation; once the tax liability is discharged, regardless of the person who discharges it, the assessee cannot be asked to pay the tax again - Furthermore, the Chartered Accountant's certificate, evidencing payment by the service recipient, cannot be disbelieved without any contrary material. As the certificate confirmed that the service recipient had discharged its service tax liability under RCM and the appellant had discharged its share, the entire tax on the consideration stood paid. Thus, demanding the service tax once again is impermissible and set aside - The appellant succeeds in its appeal on merits as well as on its plea against invoking the extended period of limitation - Whether a demand for service tax is sustainable on the ground of a change in service classification, when the tax has already been paid by the assessee under a different, albeit incorrect, classification, and the entire tax due has reached the Government – HELD - Tax already paid under a wrong category can always be considered towards the liability under the new, correct category. It is a settled principle that technicalities should not defeat the rendering of complete justice. There is no allegation that the appellant failed to discharge the service tax liability under the classification it had adopted. Since the entire service tax liability on the services rendered stood discharged, as evidenced by payments from both the appellant and the service recipient, the directions for remand to re-quantify liability are otiose and untenable. The state, when dealing with a citizen, should not ordinarily rely on technicalities but should act in a manner consistent with a broader concept of justice - Whether the extended period of limitation can be invoked to demand service tax when the entire demand is premised on information available in the assessee's own ST-3 returns and documents, without any evidence of a positive act of suppression or wilful misstatement with intent to evade tax – HELD - The extended period of limitation is not invokable. The demand was premised entirely on the ST-3 returns filed by the appellant, and there was no evidence adduced of any positive act of deliberate suppression of facts or wilful misstatement with an intent to evade payment of duty. It is a settled position in law that the burden of proving any form of mala fide lies on the shoulders of the one alleging it, and the department failed to discharge this heavy burden. When the demand is based only on documents provided by the appellant, and the department has not brought forth any new or independent material that was not already disclosed, the charge of suppression cannot be sustained. It is for the department to scrutinize the returns filed, and a mere failure to correctly classify a service or pay tax, without an active intent to evade, does not amount to suppression of facts.
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