The Supreme Court in the case of Rashtriya Ispat Nigam Ltd vs Dewan Chand Ram Saran 2012 (26) STR 289 SC, has decided as follows:
- Service tax is an indirect tax which may be passed on. Thus, assessee can contract to shift their liability. Finance Act, 1994 is relevant only between assessee and tax authorities. It is irrelevant to determine rights and liabilities between service provider and recipient as agreed in contract between them.
Even in case of a service covered under RCM, for example, GTA service, the above case law is applicable. Neither section 68(2) nor Notification 30/2012 contains clauses to override the principle in the above judgement in the context of RCM. Thus, if the service provider and the service recipient enter into a contract where it is stipulated that “the service provider shall bear and pay all taxes, duties and liabilities in connection with discharge of obligations specified in the contract”, the course of action will be as follows:
· The liability to discharge service tax will be on the service provider
· If service tax is not charged separately in the invoice raised by the service provider, the service receiver can still deduct the amount of service tax from the invoice amount and remit it to the government and pay only the remaining amount to the service provider.
If such a practice is allowed and validated in law, I have the following doubts:
· Since the service tax has already been deducted by the service receiver and remitted to the government, will the service provider be denied his right to claim CENVAT credit?
· Due to the tax-liability shifting clause in the contract, has the service receiver successfully circumvented the RCM provisions, ie, avoided paying service tax out of his own pocket?
Can anyone please clarify these doubts at the earliest?
regds,
Shruti.R
CAclubindia
