Service Tax Already Paid Cannot Be Demanded Again Merely Due to Wrong Classification: CESTAT Mumbai
Pranav B Prem
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai has held that service tax already deposited— even if paid under an incorrect classification in the ST-3 return—cannot be demanded again by treating it as unpaid. The Tribunal ruled that once tax has reached the Government treasury, the Department cannot invoke extended limitation or re-tax the assessee merely because the service was entered under a different description.
The appeal was filed by Sodexo India Services Pvt. Ltd. against a confirmed demand of ₹11,75,531 along with interest and penalty. The dispute originated from CERA and EA-2000 audits conducted for the years 2013 to 2016. During audit, officials observed that various expenditures incurred in foreign currency—such as bank guarantee commission, technical assistance fees, legal and professional charges and communication expenses—attracted service tax under the Reverse Charge Mechanism (RCM). Although the appellant had discharged service tax on these amounts, the payments were reflected under the category of “Business Auxiliary Service” (BAS) instead of “Management and Business Consultancy” (MBC) or “Intellectual Property Rights” (IPR). A short payment was also noted for a specific period. Nevertheless, the record showed that the appellant had already paid a total tax of ₹12,78,922, which exceeded the alleged differential demand.
Despite this, the Department issued a show-cause notice on 15 April 2019 proposing recovery of the alleged short-paid amount with interest and penalty. The adjudicating authority confirmed the demand and the Commissioner (Appeals) upheld the same, leading to the present appeal before CESTAT.
During the hearing, the appellant argued that the entire liability had been discharged much before the issuance of the show-cause notice and that Section 73(3) of the Finance Act, 1994 barred the issuance of such notice when dues were voluntarily paid. It was stressed that paying under a wrong service category did not amount to non-payment of service tax since the amount had already been credited to the Government. The appellant also highlighted revenue neutrality, noting that it was eligible for CENVAT credit of tax paid under RCM. A Chartered Accountant’s certificate substantiating the tax payment was produced before the authorities, though it had not been considered earlier.
The Department, however, argued that the appellant failed to reconcile figures in its returns with the records provided, and contended that the benefit of revenue neutrality could not be claimed in light of the Supreme Court’s judgment in Nirlon Ltd. It insisted that tax was not shown to have been paid under the correct service category and that the demand was therefore justified.
After evaluating the submissions, CESTAT found that the facts clearly established payment of the entire amount prior to the show-cause notice. The Tribunal emphasised that the notice itself was impermissible in view of Section 73(3). It also noted that after introduction of the Negative List regime in July 2012, classification of services lost practical relevance. Entering an incorrect description in the ST-3 return could not be treated as non-payment of tax. The Tribunal observed that “merely because a column is available to put description of service in ST-3 return… it would never mean that the entire payment made by the appellant would not get credited to the account of the Central Government and it would be required to pay the same tax once again.”
CESTAT relied on its earlier decisions, including State Bank of India v. CGST, Ludhiana and Air Charter Services Pvt. Ltd., where it was held that tax paid under a wrong category could be appropriated toward liability under another category. The Bench reiterated that demanding tax again in such circumstances would amount to double taxation, which the law does not permit.
In conclusion, the Tribunal set aside the Commissioner (Appeals)’s order dated 31 December 2024 and allowed the appeal, granting consequential relief to the assessee. The ruling reinforces the legal principle that misclassification, by itself, cannot transform an already-paid tax into a fresh liability, and that voluntary pre-notice payment shields the assessee from further proceedings under Section 73(3).
Appearance
Counsel For Petitioner: Arun Jain, Advocate
Counsel For Respondent: Dhananjay Dahiwale, Dy. Commissioner
Cause Title: Sodexo India Services Pvt Ltd Versus Commissioner Of Central Excise And Service Tax
Case No: Service Tax Appeal No. 85614 Of 2025
Coram: Dr. Suvendu Kumar Pati (Judicial Member)
