2015 (12) TMI 1572 - AT - Service Tax

Demand of interest and imposition pf penalties - for the period post 18.04.2006 - raised an amount as External Commercial Borrowing (ECB) in the form of Convertible Bond - to raise ECB, appellant had paid amounts to various entities situated abroad as an amount towards the service rendered - appellant discharged service tax liability and has also availed the CENVAT credit of such service tax liability on the amount paid as tax under reverse charge mechanism. Held that - appellant s challenge to demand of interest is basically on the ground that the said demand of tax was not sustainable on the ground that the show-cause notice is issued for the demand of tax on 11.03.2008 while the fees were paid to various entities during the period October 2004 to September 2006 and the demand of tax was paid on 28.05.2007. We find strong force in the contentions raised by the appellant in as much if the appellant would have taken the plea of limitation, he may have succeeded and no demand of tax would be sustainable on him by applying the judgement of Tribunal in the case of Jain Irrigation Systems Ltd 2015 (9) TMI 160 - CESTAT MUMBAI . Therefore, we set aside the demand of the interest and the penalties imposed on the appellant by the impugned order which is challenged before us. - Appeal disposed of

Summary

Issues:
Confirmation of interest and penalties under Section 77 and 78 of the Finance Act, 1994 for payment made towards External Commercial Borrowing (ECB) in the form of Convertible Bond to entities abroad under reverse charge mechanism.

Analysis:
1. The appellant raised an amount as ECB from October 2004 to September 2006, paying entities abroad for services rendered. Revenue claimed service tax liability under reverse charge mechanism. Adjudicating authority dropped proceedings pre-18.04.2006 based on Indian National Ship Owners Association case but confirmed demands post-18.04.2006, imposing interest and penalties. Appellant disputed interest and penalties, citing Jain Irrigation Systems Ltd. case where CENVAT credit led to setting aside interest and penalties.

2. Learned Counsel argued that the demand was unsustainable due to limitations and CENVAT credit availed. Revenue cited Tata Steel Ltd. case for taxability of payments to banks abroad. Tribunal noted appellant's discharge of service tax liability and CENVAT credit availed. Counsel contended interest demand timing and reliance on Jain Irrigation Systems Ltd. case. Tribunal considered Apex Court's Kitply Industries Ltd. decision on revenue neutrality and penalties, setting aside interest and penalties based on Jain Irrigation Systems Ltd. case.

3. The Tribunal found no alternate scheme misuse by the appellant, establishing revenue neutrality, and no mens rea for penalties. The decision differentiated the present case from Kitply Industries Ltd. based on clauses (a), (b), and (d), applying clause (c) for revenue neutral situation regarding credit available to the appellant. Thus, interest and penalties were set aside, aligning with Jain Irrigation Systems Ltd. case.

4. The judgment of Tata Steel Ltd. was deemed inapplicable due to differing facts, and the limitation aspect was not clear. The Tribunal concluded that the Jain Irrigation Systems Ltd. ratio applied, setting aside interest and penalties imposed on the appellant. The appeal was allowed, and the application for stay extension was disposed of accordingly.