2017 (1) TMI 548 - AT - Service Tax

Reverse Charge Mechanism - the amounts paid as fees for raising extra commercial borrowings from overseas investors - Held that - entire issue needs to be reconsidered by the adjudicating authority for the simple reason that the appellant had not taken the plea of revenue neutrality before the lower authority. Revenue neutrality is a question of law as also it is a question of fact whether the appellant is entitled to take CENVAT credit of service tax on the service tax paid on the services received by them from their overseas services providers, in this case, it is the submission of the learned AR that the appellant has got units which manufacture exempted products - appeal allowed by way of remand.

Summary

Issues Involved:
Demand of service tax liability on the appellant under reverse-charge mechanism for fees paid for raising extra commercial borrowings from overseas investors.

Analysis:
The appeal challenged an Order-in-Original passed by the Commissioner of Service Tax, Mumbai, regarding the demand of service tax liability on the appellant under the reverse-charge mechanism. The issue revolved around the amounts paid by the appellant as fees for raising extra commercial borrowings from overseas investors. The Revenue contended that the payments made by the appellant were liable to be taxed under the reverse-charge mechanism as per Section 66A of the Finance Act, 1994.

The appellant argued that there have been cases where service tax under reverse-charge mechanism, when utilized directly by the manufacturer, resulted in revenue neutrality due to the availability of CENVAT credit. Therefore, the appellant requested the entire demand to be set aside based on the concept of revenue neutrality. However, the Departmental Representative opposed this argument, stating that the issue of revenue neutrality was not raised before the adjudicating authority initially and should not be entertained at this stage. Additionally, it was highlighted that some units of the appellant were involved in manufacturing exempted products, making the availing of CENVAT credit on the service tax paid a complex matter.

After considering the submissions from both sides and reviewing the records, the Tribunal concluded that the entire issue needed to be reconsidered by the adjudicating authority. The Tribunal emphasized that the plea of revenue neutrality was not raised before the lower authority and that it was a question of both law and fact whether the appellant could avail CENVAT credit on the service tax paid for services received from overseas providers. Therefore, the Tribunal set aside the impugned order and remanded the matter back to the adjudicating authority for a fresh consideration following the principles of natural justice.

In conclusion, the appeal was disposed of by way of remand, with the Tribunal refraining from expressing any opinion on the merits of the case. The judgment was pronounced in court on 21/12/2016.