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ST - Once an activity is exempted u/s 66B in terms of Notfn. 25/2012, question of invoking Notfn 30/2012 dealing with reverse charge mechanism does not arise at all: CESTAT

By TIOL News Service

BANGALORE, FEB 14, 2018: THE appellant is a business entity with 'NIL' turnover.

Purportedly, due to ignorance of law, the appellant paid service tax on Inward Legal Services rendered by the advocates for the period March 2012 to March 2013 under reverse charge mechanism, notification 30/2012-ST.

Thereafter,the appellant filed a refund claim on 10.07.2014 seeking refund of the service tax paid of Rs.8,47,972/- and on the ground that they were under the threshold limit of turnover during the financial years 2011-2012 and 2012-2013; i.e. they were exempted from payment of service tax in terms of Sl. No. 6(b)(iii) of Notification No. 25/2012-ST dated 20.06.2012.

The original authority issued SCN seeking to deny the refund on the ground that the claim was filed beyond one year from the date of payment of service tax and also on the basis that the exemption given to services and covered by Sl. No. 6(b)(iii) of Notification No. 25/2012-ST is not applicable when the service tax liability to is required to be discharged under reverse charge mechanism.

In further proceedings, the adjudicating authority dropped the ground of rejection of refund claim on account of limitation prescribed u/s 11B by relying upon the decision in KVR Construction -  2010-TIOL-980-HC-KAR-ST . However, the adjudicating authority rejected the refund claim on the ground that the appellant had not submitted the original payment challan or ST-3 Returns or invoices and that the principles of unjust enrichment stand attracted.

The Commissioner(A), however, rejected the refund claim on the ground of limitation as well as on the other grounds taken by the adjudicating authority .

The appellant is before the CESTAT against this order.

It is inter alia submitted that the Commissioner(A) should not have decided the issue of limitation as the same was not in appeal before him moreso since Revenue had not appealed against this portion of the order.

The Bench made the following observations -

++ …the findings of the Commissioner (Appeals) that the claim is barred by limitation is not sustainable in law as the lower authority has already held that the refund claim is not barred by limitation by relying upon the decision of the Karnataka High court in the case of KVR Construction cited supra. Further, I find that the Revenue has not challenged the finding of the original authority that the refund is not barred by limitation.

++ …the appellant's case is squarely covered by Notification No. 25/2012 which exempts service tax levy on advocate services received by business entities with turnover of less than Rs. 10 lakhs. Once an activity is exempted under Section 66B in terms of Exemption Notification 25/2012, the question of invoking Notification No. 30/2012 issued under Section 68(2) dealing with reverse charge mechanism does not arise at all . This issue has been settled by the Bombay High Court in the case of  P.C. Joshi Vs. Union of India -   2014-TIOL-2279-HC-MUM-ST  …

++ …the Commissioner (Appeals) has wrongly held that the appellant has not filed the original invoices and original challans whereas in the Order-in-Original the original authority has observed that the copies of invoices and the payment challans have been indeed submitted. Further I also find that the Education Guide dated 20.06.2012 issued by CBEC has also stated that exemption is available to business entities with less than turnover of Rs. 10 lakhs in respect of service tax payable under reverse charge mechanism…

The impugned order was set aside as not sustainable in law. The original authority was directed to verify the documents before sanctioning the refund claim and thereafter sanction the refund claim, in accordance with law.

(See 2018-TIOL-548-CESTAT-BANG)

Sub: Misquote of Education Guide clarification

Sir, Education guide Clarification seems misreported. It conveys meaning that Threshold Limit of 10 lakhs (SSP exemption) is applicable even in respect of liabilities payable under RCM. Relevant para of Education Guide is reproduced below. "10.1.3 If the service provider is exempted being a SSI (turnover less than Rs 10 lakhs),
how will the reverse charge mechanism work?
The liability of the service provider and service recipient are different and independent of
each other. Thus in case the service provider is availing exemption owing to turnover being
less than Rs 10 lakhs, he shall not be obliged to pay any tax. However, the service recipient
shall have to pay service tax which he is obliged to pay under the partial reverse charge
Please cross check with Judgement.
Mallikarjun Reddy

Posted by mallikarjun reddy c