Transporter’s Tax Payment Bars Reverse Charge Liability: CESTAT Drops Double Taxation [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal, Kolkata (CESTAT), has held that service tax cannot be demanded from a service recipient under the reverse charge mechanism when the Goods Transport Agency has already charged and paid service tax on the same service.

Mahavir Logistics Pvt. Ltd. appealed the Order-in-Original that confirmed service tax of ₹21,61,334 on freight charges paid for transportation of clinker by transporters who had already issued invoices inclusive of service tax and deposited the same with the Government.

The dispute arose after the adjudicating authority treated the appellant as liable to pay service tax again under Section 68(2) of the Finance Act, 1994, read with Rule 2(1)(d) of the Service Tax Rules, 1994.

Represented by Advocate Ajay Sanwaria and Advocate Sukalpa Seal, the appellant submitted that the transporters, Shiv Construction and Neel Enterprise, were registered under the Finance Act, 1994, had charged service tax in their invoices, and the appellant had reimbursed the tax amount to them. It was contended that the tax had already reached the exchequer and that invoking the reverse charge mechanism to demand the same tax from the recipient would lead to double taxation.

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In the light of CBEC vide Circular No.341/18/2004-TRU dated 17.12.04, it was submitted that the transporter pays service tax, the same cannot again be demanded from any other person. The appellant also cited the Karnataka High Court’s ruling in Zyeta Interiors (2022), which held that when the service provider has discharged the tax liability, no further tax can be recovered from the recipient under reverse charge.

Representing the department, Authorised Representative P. Das argued that the mechanism under Section 68(2) mandates tax payment by the recipient and does not depend on the transporter’s compliance.

The Bench comprising Judicial Member R. Muralidhar and Technical Member K. Anpazhakan disagreed with the department’s approach, observing that the transporters had charged and paid service tax, and the department did not dispute the actual payment of tax to the Government.

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The Bench held that collecting the same tax again from the appellant would defeat the principle against double taxation. The Tribunal noted that the reverse charge mechanism does not override the fact that tax has been fully discharged and acknowledged by the department itself.

Accordingly, CESTAT held that the demand under reverse charge was unsustainable. Since the primary demand failed, interest and penalty could not survive. The appeal on this issue was fully allowed with consequential relief.