2015 (10) TMI 58 - AT - Service Tax

Waiver of pre deposit - Demand of service tax - appellant was of the view that it was not liable to service tax since LICHFL was remitting service tax on full value and therefore on the principles of revenue neutrality, there was no liability for the appellant to remit service tax as that would be available to LICHFL as CENVAT credit. - Held that - Entitlement to credit is predicated on the basis of such a facility provided under CENVAT Credit Rules, 2004. These Rules constitute a policy choice of the State. The entitlement of LICHFL to avail CENVAT credit depends upon provisions of the Rules, whether credit could be taken and the conditions upon which CENVAT credit may be availed under the Rules. The liability of the appellant to remit service tax for having provided BAS is clear and beyond dispute. Such liability is not eclipsed on the premise that had the appellant remitted service tax, LICHFL could have taken credit of the same. The whole schemata of taxation at the level of each taxable event would be rendered otiose and inoperative on application of the concept of revenue neutrality as a clog on the liability to service tax. - Revenue neutrality may conceptually arise if the liability to tax and the entitlement to credit inheres in the same entity and in respect of identical taxable event. - Partial stay granted.

Summary

Issues:
1. Invocation of extended limitation period for service tax demand.
2. Applicability of revenue neutrality concept to claim immunity from tax liability.
3. Interpretation of CENVAT credit rules in relation to service tax liability.
4. Application of revenue neutrality principle in taxation.

Analysis:
1. The appellant, a Direct Sales Agent/Associate (DSA) for a financial institution, contested a service tax demand for providing Business Auxiliary Service (BAS) during a specific period. The appellant argued against the invocation of the extended limitation period, claiming early notification to the tax department about immunity to tax based on revenue neutrality principles. The appellate order partially allowed the appeal, reducing the service tax demand and penalty under Section 78 of the Finance Act, 1994.

2. The appellant contended that revenue neutrality, where the service recipient remits service tax on the full value, should exempt the appellant from service tax liability. This argument was supported by references to previous Tribunal orders. However, the Tribunal rejected the concept of revenue neutrality as a normative principle, emphasizing the clear liability of the appellant to remit service tax for providing BAS, regardless of the recipient's ability to claim credit under CENVAT Credit Rules.

3. The Tribunal highlighted that the entitlement to CENVAT credit is subject to specific rules and conditions set by the State, and the liability to remit service tax is not negated by the recipient's potential credit claim. The Tribunal emphasized that applying revenue neutrality as a basis for tax immunity would undermine the fundamental taxation framework and legislative competence to tax transactions at different stages.

4. While acknowledging the concept of revenue neutrality in specific scenarios, the Tribunal declined to extend it to grant immunity to the appellant for the normal limitation period. The Tribunal directed the appellant to pre-deposit a specified amount for the normal period of limitation, emphasizing the clear tax liability despite the arguments related to revenue neutrality. The decision highlighted the distinction between the extended and normal limitation periods concerning the application of the revenue neutrality principle in taxation matters.