Demand Under RCM Can’t Be Sustained If Entire Service Tax Liability Has Already Been Discharged By Service Provider: CESTAT

The Hyderabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that demand under the Reverse Charge Mechanism (RCM) cannot be sustained if the entire service tax liability has already been discharged by the service provider. However, the Tribunal directed verification of factual evidence before granting relief. The Bench of A.K. Jyotishi (Technical Member) and Angad Prasad (Judicial Member) remanded the matter to the original adjudicating authority to verify whether the entire service tax liability had been discharged by the service providers. If verified, the demand to that extent would not survive. For any remaining unpaid portion, the demand along with interest would be sustainable. The appellant/assessee, M/s Arunachala Logistics (P) Ltd., engaged in providing Clearing and Forwarding Agent services and Goods Transport Agency (GTA) services, had availed security services from providers other than body corporates. Under Section 68(2) of the Finance Act, 1994 read with Notification No. 30/2012-ST dated June 20, 2012, recipients of such services were required to discharge 75% of the service tax liability under RCM, while the service provider was liable for the remaining 25%. The Department alleged that the appellant failed to discharge its 75% liability under RCM on the security services received. The adjudicating authority confirmed the demand, stating that statutory liability under RCM cannot be avoided merely because the service provider may have paid the tax. The Commissioner (Appeals) concurred, observing that even if the service provider claimed to have paid 100% of the tax, the appellant failed to establish this with conclusive evidence. Before the Tribunal, the appellant argued that the entire service tax liability had already been discharged by the service providers, and the tax component was reimbursed by the appellant as per contractual arrangements. They relied on copies of invoices and ST-3 returns of service providers to contend that there was no revenue loss to the exchequer. It was further submitted that in indirect taxation, there is no prohibition against tax being paid by a person other than the one statutorily liable. The appellant also argued that invocation of the extended period was unjustified, as the demand was based on records already available with the Department and the situation was revenue neutral. The core issue was whether service tax liability under RCM remained unpaid when the service provider had allegedly discharged the entire 100% tax. The Tribunal referred to earlier decisions holding that once service tax has been paid on the full value of services, raising a further demand on the recipient would amount to double taxation. It noted that if the service provider had indeed paid the entire tax liability—whether on its own or on behalf of the recipient—any fresh demand under RCM would not be sustainable to that extent. However, the Bench found that the appellant had not conclusively established that the service providers had discharged 100% of the tax or that the appellant had reimbursed the full tax component. Certain ST-3 returns indicated that the value was reflected under the column pertaining to partial reverse charge, casting doubt on the claim of full payment. The Tribunal held that mere revenue neutrality under RCM is not a ground to preclude invocation of the extended period, especially in light of the Supreme Court’s ruling in Star Industries v. Commissioner of Customs (Imports), Raigad. Since the appellant was aware of the statutory RCM provisions and failed to produce conclusive evidence of full tax discharge, invocation of the extended period and imposition of penalty under Section 78 would be justified to the extent of confirmed demand after recalculation. Case Details Case Title: M/s Arunachala Logistics (P) Ltd. Versus Commissioner of Central Tax Citation: JURISHOUR-192-CESTAT-2026(Hyd) Case No.: Service Tax Appeal No. 30548 of 2018 Date: 27/02/2026 Counsel For Appellant: Y. Sreenivasa Reddy, Advocate Counsel For Respondent: B. Subhas Chandra Bose, Authorized Representative Click Here To Read Order Read More: Separate AC Supply and Installation Contracts Qualifies as Works Contract: CESTAT

Demand Under RCM Can’t Be Sustained If Entire Service Tax Liability Has Already Been Discharged By Service Provider: CESTAT

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