2024 (1) TMI 886 - AT - Service Tax

Revenue Neutrality - Reverse charge mechanism - legal services - rent-a-cab service - clouding service - purchasing licence use of Geneva brand product - interest - penalty - HELD THAT - Legal services and rent-a-cab services were specified services under Notification No.30/12-ST dated 20.06.12 on which service tax was payable by the service recipient under reverse charge mechanism. Clouding services and Authorisation for use of Geneva product were provided by entities located abroad, i.e., non-taxable area. So, service tax on said services was payable by service recipient under reverse charge mechanism - it is further found that the Appellant was a registered person under service tax and was eligible for taking Cenvat credit paid on input services. It is a fact that all said services were input services for the Appellant. Whatever tax was paid on said services, the Appellant would have taken back as Cenvat credit. Thus there was no gain to the government exchequer in that case. It is a case of revenue neutrality. The issue of the applicability of revenue neutrality in the circumstances of charging service tax under reverse charge mechanism has been settled in catena of judgments - In the case of Jain Irrigation System Ltd. 2015 (9) TMI 160 - CESTAT MUMBAI the Tribunal holds that revenue neutral situation comes about when credit is available to assessee himself. In the case of Coca-Cola India Pvt. Ltd. 2007 (4) TMI 17 - SUPREME COURT the Apex Court accepted the stand that the duty payable in respect of beverage basis/concentrates is modvatable. Since the duty payable is modvatable, there is no revenue implication. By applying ratio of above decisions, it is found that the present case is a revenue neutrality case and as such no demand is sustainable. Interest and penalty - HELD THAT - The issue is no more res integra. Once demand is not sustainable, interest and penalty under Section 78 of the Finance Act, 1994 would not be imposable. When demand is not sustainable on the ground of revenue neutrality, it is not essential to consider other issues raised by the Ld Counsel of the Appellant in relation to classification and invoking extended period. The impugned order is set aside - Appeal allowed.

Summary

Issues Involved:
1. Demand of service tax on legal services and rent-a-cab services under reverse charge mechanism.
2. Demand of service tax on cloud services from Amazon Web Services.
3. Demand of service tax on purchase of software license from Advent Software.
4. Revenue neutrality and its applicability.
5. Imposition of interest and penalty under Section 78 of the Finance Act, 1994.

Summary:

1. Demand of Service Tax on Legal Services and Rent-a-Cab Services under Reverse Charge Mechanism:
The Appellant argued that the services received were input services and if service tax had been paid under reverse charge, it would have been availed as CENVAT credit and refunded, making it a case of revenue neutrality. The Tribunal referred to similar cases, including the decision in M/s Weavetex Overseas and various judicial precedents, concluding that no tax is required if there is no revenue implication.

2. Demand of Service Tax on Cloud Services from Amazon Web Services:
The Appellant contended that cloud services were covered under "Online information and database access or retrieval services" as per Rule 2(l) of the Place of Provision of Services Rules, 2012, and were exempt from service tax up to 30.11.2016. The Tribunal agreed that the cloud services were indeed part of the said definition and thus, the demand for service tax on cloud services was not justified.

3. Demand of Service Tax on Purchase of Software License from Advent Software:
The Appellant argued that the software license for "Geneva" was also covered under "Online information and database access or retrieval services" and was exempt from service tax. The Tribunal noted that the service tax paid under reverse charge would be eligible for CENVAT credit and ultimately refunded, reinforcing the revenue neutrality argument.

4. Revenue Neutrality and Its Applicability:
The Tribunal emphasized that since the Appellant could avail CENVAT credit on the service tax paid under reverse charge mechanism, the situation was revenue neutral. Citing several judgments, including Jet Airways India Ltd. and Coca-Cola India Pvt. Ltd., it was held that no demand is sustainable in a revenue-neutral scenario.

5. Imposition of Interest and Penalty under Section 78 of the Finance Act, 1994:
The Tribunal held that once the demand is not sustainable due to revenue neutrality, interest and penalty under Section 78 of the Finance Act, 1994, are also not imposable. This was supported by decisions in cases like CCE, Pune Vs. Coca-Cola India Pvt. Ltd. and Hindalco Industries Ltd.

Conclusion:
The appeal was allowed, and the impugned order was set aside. The Appellant was entitled to consequential benefits in accordance with the law. The Tribunal did not find it necessary to consider other issues related to classification and the extended period due to the conclusion on revenue neutrality.