Service Tax Can’t Be Demanded Again When Already Paid Under Wrong Category: CESTAT

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai has held that service tax already deposited— even if paid under an incorrect classification in ST-3 returns— cannot be demanded again by treating it as unpaid. The bench of Dr. Suvendu Kumar Pati (Judicial Member) has ruled that a mere misclassification of service under the wrong category does not justify re-taxation or invocation of the extended limitation period when the entire tax liability has already reached the Government treasury. The dispute arose following CERA and EA-2000 audits of the assessee for the period 2013 to 2016. Audit teams observed that expenses incurred in foreign currency, including bank guarantee commissions, technical assistance fees, legal and professional charges, and communication expenses, attracted service tax liability under the Reverse Charge Mechanism. Although the assessee had indeed discharged service tax on these amounts, it had done so under the head “Business Auxiliary Service” (BAS) instead of “Management and Business Consultancy” (MBC) or “Intellectual Property Rights” (IPR). Auditors also recorded a short payment under RCM for certain periods. Despite the assessee later paying a total of ₹12.78 lakh—an amount higher than the alleged differential demand—the Department still issued a show-cause notice on April 15, 2019, proposing recovery of ₹11.75 lakh along with interest and penalty. The adjudicating authority and the Commissioner (Appeals) confirmed the demand, leading to the present appeal before CESTAT. The assessee argued that the assessee had discharged the entire tax liability well before issuance of the show-cause notice, which legally barred the issuance of such notice under Section 73(3) of the Finance Act, 1994. The wrong classification in the ST-3 return cannot amount to non-payment of tax, as the amount already stood credited to the Government. He further emphasised that the situation was entirely revenue-neutral, given that the assessee was eligible for CENVAT credit of the amount paid under RCM. A Chartered Accountant’s certificate confirming the payments was also placed on record, though the lower authorities had declined to consider it. All information was available to audit officials from statutory records, ruling out any allegation of suppression necessary for invoking the extended period. The department contended that the assessee failed to reconcile the figures in its returns with the documents provided and argued that the benefit of revenue neutrality could not be claimed in the light of the Supreme Court’s ruling in the Nirlon Limited case. He insisted that tax had not been proved to be paid under the correct category and therefore the demand was justified. After reviewing the submissions and examining the case laws, the Tribunal found that the entire tax amount had been paid before the show-cause notice, making the notice itself impermissible under Section 73(3). It observed that after introduction of the Negative List regime in 2012, the relevance of classification largely diminished, and entering a wrong category in the ST-3 return did not mean the tax was unpaid. Relying on earlier decisions holding that tax paid under one category can be appropriated toward liability under another, the Tribunal held that demanding the same tax again would amount to double taxation, which the law does not permit. The CESTAT set aside the order of the Commissioner (Appeals) dated December 31, 2024, and allowed the appeal with consequential relief. The ruling reinforces the judicial view that classification errors cannot lead to repeated taxation and that voluntary payment prior to notice protects the assessee from protracted litigation under Section 73(3). Case Details Case Title: Sodexo India Services Pvt Ltd Versus Commissioner Of Central Excise And Service Tax Case No.: Service Tax Appeal No. 85614 Of 2025 Date: 10/12/2025 Counsel For Petitioner: Arun Jain, Advocate Counsel For Respondent: Dhananjay Dahiwale, Dy. Commissioner Click Here To Read Order Read More: R. 17(1)(g) Of APVAT Rules Can’t Be Invoked Without Examining Records: AP HC Quashes VAT Assessments on Offshore Project

Service Tax Can’t Be Demanded Again When Already Paid Under Wrong Category: CESTAT

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