2012 (12) TMI 792 - AT - Service Tax

Reverse charge - revenue neutral - extended period of limitation - External Commercial Borrowings (ECB) under Banking and Other Financial Services - Liability to pay Service Tax - Held that - Appellants were eligible for CENVAT credit for the amount paid as Service Tax and, therefore, this is a situation which was revenue neutral and by not paying the Service Tax immediately, appellants have lost more than Rs.26,00,000/- paid by them as interest which would not have become payable if Service Tax was paid promptly and taken as credit. No service recipient would evade payment of Service Tax and become liable to pay interest which cannot be taken as credit. Therefore, it cannot be said that there was mis-declaration or suppression in the action of the appellants rendering them liable to penalty under various Sections of the Finance Act, in view of the fact that the demand itself is time barred since extended period could not have been invoked. Since appellants are not contesting demand for Service Tax and interest paid by them, the confirmation of demand for Service Tax and interest thereof has to be upheld as not contested and penalties have to be set-aside - appeal is allowed to the extent of penalties imposed under various sections which are set-aside.

Summary

Issues: Liability to pay Service Tax on commercial charges for availing External Commercial Borrowings (ECB), applicability of penalties under the Finance Act, 1994, invocation of extended period for demand, intention to evade tax, availability of CENVAT credit, confusion due to restructuring in the Finance Department, non-payment of Service Tax promptly, imposition of penalties on the appellants.

The judgment by the Appellate Tribunal CESTAT AHMEDABAD involved a case where the appellants, engaged in providing Port services, were under scrutiny for not paying Service Tax on commercial charges for availing External Commercial Borrowings (ECB) under "Banking and Other Financial Services" from 2005-06 to June 2010. The appellants promptly paid the Service Tax of Rs.1,75,74,654/- with interest in September/October 2010 after submitting details to the department. Subsequently, proceedings were initiated culminating in an order imposing penalties under various sections of the Finance Act, 1994, despite the appellants not contesting the demand for Service Tax and interest paid by them. The key contention was the invocation of the extended period for demand, the availability of CENVAT credit, and the intention to evade tax.

The appellant's representative argued that there was no dispute regarding the liability to pay Service Tax, emphasizing that the amount paid was available as CENVAT credit for the payment of Service Tax. It was contended that there was no intention to evade tax, and hence, the extended period for demand could not have been invoked. Referring to a Tribunal decision, it was asserted that in such cases, no penalty should be imposed. The non-payment of Service Tax on ECB was attributed to a restructuring in the Finance Department, leading to confusion and lack of intention to evade tax. The confusion arose due to decisions made at the Head Office, unknown to the unit receiving the service.

On the other hand, the respondent's representative argued that the appellants received services related to ECB and were liable to pay Service Tax as recipients but failed to do so, did not register, or inform the department, justifying the imposition of penalties. The Tribunal acknowledged that the appellants were eligible for CENVAT credit, resulting in a revenue-neutral situation. It was noted that the appellants incurred additional interest costs due to delayed payment of Service Tax, which would not have been payable if the tax was promptly paid and taken as credit. The Tribunal concluded that there was no mis-declaration or suppression by the appellants, as the demand itself was time-barred, and penalties were not warranted since the appellants were not disputing the Service Tax demand and interest paid.

In the final decision, the Tribunal allowed the appeal to the extent of setting aside the penalties imposed on the appellants under various sections of the Finance Act, considering the circumstances where the demand for Service Tax and interest was not contested.