2015 (9) TMI 160 - AT - Service Tax

Import of taxable services - reverse charge - entire exercise is revenue neutral - Banking and other Financial Services - Invocation of extended period of limitation - Levy of Penalties under Sections 76, 77 and 78 - Mens rea - Held that - Service tax was paid by the appellant after the issue of the show cause notice and before the passing of the adjudication order. Revenue relies on the decision of the Apex court in the case of Kitply Industries (2011 (4) TMI 523 - SUPREME COURT OF INDIA). - The revenue neutral situation comes about in relation to the credit available to the appellant himself and not by way of availability of credit to anyone else. Therefore the case of Jay Yushin Ltd 2000 (7) TMI 105 - CEGAT, COURT NO. I, NEW DELHI applies in the present situation after considering the guidance drawn by the Supreme Court in the case of KitPly Industries (supra). In this view of the matter, as the entire exercise is revenue neutral we find that mens rea is not established for imposition of penalties. - As the duty stands paid and credit of duty paid is admissible, the impugned order is set aside to the extent of recovery of interest and imposition of penalties. - Decided in favour of assessee.

Summary

Issues:
Appeal against confirmation of demand of service tax, interest, and penalties under Sections 76, 77, and 78 of the Finance Act 1994 for availing lending services from foreign service providers.

Analysis:
The appellant availed lending services from foreign service providers for Economic Commercial Borrowings (ECB), leading to the demand of service tax under 'Banking and other Financial Services' category. The demand was confirmed for a specific period due to failure to file returns and pay service tax on time. The penalty equivalent to the tax amount was also imposed under Section 78.

The appellant argued that the service tax was paid before the adjudication order, making the exercise revenue neutral as Cenvat credit was available immediately. They cited Tribunal judgments and claimed exemption on transactions with International Finance Corporation (IFC) under the IFC Act. The appellant contended that there was no intention to evade tax, relying on precedents such as Jay Yushin Ltd and British Airways.

The revenue authority maintained that the appellant failed to pay service tax timely, suggesting a malafide belief. They argued for penalty imposition based on a Supreme Court decision regarding intention to evade tax.

The Tribunal considered both sides' submissions and the legal precedents cited. They noted that the service tax was paid before the adjudication order. Referring to the Supreme Court's decision in Kitply Industries case, the Tribunal analyzed the clauses related to revenue neutrality and misuse of schemes. They found no alternate scheme misuse by the appellant, leading to a revenue-neutral situation. Consequently, the Tribunal set aside the recovery of interest and penalties, ruling in favor of the appellant.

In conclusion, the Tribunal allowed the appeal, emphasizing the revenue-neutral nature of the case and the absence of mens rea for penalty imposition. The judgment highlighted the importance of considering each case's specific facts and legal principles to determine tax liability and penalties accurately.