2019 (3) TMI 1230 - AT - Service Tax

Penalty u/s 78 of FA - tax with interest paid before issuance of SCN - Sub-section (3) of Section 73 of Finance Act, 1994 - Held that - Since, the appellant had reversed the Cenvat credit before the issuance of the show cause notice along with payment of interest, we are of the view that the revenue should not have even issued the show cause notice in terms of provisions of Sub-section (3) of Section 73 of Finance Act, 1994 - Accordingly, while upholding the reversal of Cenvat credit along with interest, we set aside the penalty imposed to the extent of ₹ 2,12,309/- - appeal allowed in part.

Summary

Issues:
1. Service tax demand for consulting and management services provided to international organizations.
2. Applicability of Notification No. 16/2002-ST to services provided to National Financial Corporation.
3. Availability of Cenvat credit on input services used for providing both taxable and exempted services.

Analysis:
1. The appellant, engaged in providing Consulting and Management Services to international organizations like UN Women, UNICEF, etc., faced a service tax demand of over ?3 crores. The adjudicating authority, considering Notification No. 16/2002-ST and Notification No.25/2012-ST, confirmed a reduced service tax liability of ?12,26,299 only.

2. The demand was primarily based on services provided to the National Financial Corporation, which was not listed in the schedule to Section (3) of the United Nations (Privileges and Immunities) Act, 1947. However, the Tribunal, citing a previous decision, held that services provided to the National Financial Corporation were covered by the exemption under Notification 16/2002-ST. Consequently, the demand of ?12,26,299 was set aside, along with the interest and penalty.

3. Additionally, the appellant was availing Cenvat credit on tax paid for various input services used for both taxable and exempted services. The revenue contended that the credit was not available due to the common use of services. The appellant, agreeing with the revenue's view, reversed the Cenvat credit amounting to ?2,12,309 along with interest. As the reversal was done before the issuance of a show cause notice, the Tribunal held that the revenue should not have issued the notice. Therefore, the penalty imposed on the reversal of Cenvat credit was set aside.

In conclusion, the appeal was disposed of in favor of the appellant, with the service tax demand being set aside, along with the interest and penalty. The Tribunal upheld the appellant's reversal of Cenvat credit and set aside the penalty imposed on the same, emphasizing that the revenue should not have issued a show cause notice in this regard.