Can a service recipient who is required to pay ST on reverse charge basis collect ST paid from provider?
WE received this mail from a Netizen -
+ "X" is a recipient of service from "Y".
+ As per the ST law, "X" is required to pay 100% Service Tax under reverse charge basis although service is provided by "Y".
+ Assume "Y" has rendered a service costing Rs.1000 to "X".
+ "X" has to pay @12.36% of Rs.1000/- as Service Tax and which comes to Rs.123.60 = Rs.124 (rounded off).
+ "X" and "Y" have a mutual understanding that Y will bear the service tax component.
+ So, "X" collects Rs.124/- from "Y" separately.
The department is of the view that "X" could not have collected this amount of Rs.124/- from "Y" and, therefore, the same is recoverable from "X" in terms of section 73A of the FA, 1994.
Is this action proper & legal in law?
The section 73A of FA, 1994 applicability - analysis.
Let us revisit the issue in pure mathematical and logical terms -
++ Rs.124/- is paid by "X" as Service Tax.
++ He has collected Rs. 124/- from "Y", the service provider. If the department wants to effect recovery of Rs.124/- too, then for a Service provided of gross value of Rs.1000/- it can be said that the department wants to pocket Rs.124 + Rs.124 = 248/- [and this is absurd and beyond what the FA comprehends]
++ Going by the rationale contained in section 73A(1) what is collected from any person in excess of the ST assessed and paid is to be deposited with the Central Government.
++ The assessee "X" not having collected amount "in excess of service tax assessed and paid" , he does not fall within the ambit of section 73A(1) of the FA, 1994.
+++ Now coming to section 73A(2), the same reads -
(2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government.
+++ The words that require emphasis are "which is not required to be collected". The provisions of reverse charge do not envisage that the payer (service recipient) of service tax cannot collect the service tax from the service provider. This sub-section operates only when no service tax is payable but the person collects any amount, in any manner as representing service tax. The amount collected in the present case is not clothed as representing service tax - it is in fact service tax itself. Since "X" in the example is required to pay service tax and has paid the same, collection of a part or whole of the same cannot attract section 73A(2) of FA, 1994.
So, the whole bogey of section 73A being attracted in the present case is mischievous, to say the least.
This can be compared with the 8% amount payable under Rule 57CC/ Rule 6. Department was always of the view that the 8% amount shall not be collected from the buyer of exempted goods. The issue is well settled now with Larger Bench of Tribunal holding that the provisions of Section 11D are not attracted (Unison Metals Vs CCE - )
Therefore there is no case to invoke the provisions of Section 73A if service tax payable under reverse charge is collected from the service provider.
Also CENVAT Credit cannot be denied to X on the ground that he has collected service tax from the service provider as the same stands paid to the Government.