2024 (12) TMI 280 - AT - Service Tax

Liability to pay differential Service Tax - differential service value on account of FOREX rate fluctuation - invocation of time limitation only for dropping of penalty - HELD THAT -The appellants have raised the issue of limitation only for dropping of penalty. However, they have paid the service tax along with interest and the service tax paid by them was taken as a Cenvat credit as submitted by the learned Counsel. Since, the appellant was eligible for Cenvat credit, the entire situation was revenue neutral as held in the various judgments cited by the appellant above. Therefore, the demand itself was not sustainable on time bar. However, since the appellant have paid service tax along with interest, the same is maintained. Since, there is no mala fide intention on the part of the appellant the ingredients required for imposing penalty under Section 78 do not exist. As regard the reliance placed by the Learned AR in case of UNION OF INDIA VERSUS M/S RAJASTHAN SPINNING WEAVING MILLS AND COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE VERSUS M/S. LANCO INDUSTRIES LTD. 2009 (5) TMI 15 - SUPREME COURT , it is found that the said judgment has held that once 11AC is applicable, the mandatory penalty of equal amount of duty is imposable. Therefore, before deciding that whether the penalty 11AC is impossible, it is to be seen that the ingredient such as suppression of facts, fraud, collusion, etc. exist in a given case, then only equal penalty can be imposed. However, in the present case as discussed above, there is no mens rea on the part of the appellant. Therefore, the equal penalty under section 78 cannot be imposed. The penalties imposed by the adjudicating authority and upheld by the Commissioner (Appeals) are set aside - The Appeal is allowed.

Summary

Issues:
Whether the appellant is liable to pay differential Service Tax on the differential service value due to FOREX rate fluctuation.

Analysis:
The main issue in this case is whether the appellant is obligated to pay differential Service Tax on the service value variance caused by FOREX rate fluctuations. The appellant contends that they have paid the service tax but argue that it is not sustainable under the extended period. They highlight the introduction of Section 67A, which mandated the adoption of Customs exchange rates for service tax payments. The appellant asserts that the law was unclear during the material period and that they acted in good faith. They argue that the demand is time-barred and cite various judgments to support their stance, emphasizing that the demand is not sustainable due to the revenue-neutral nature of the situation.

The appellant further argues that any tax payable was related to production activities and eligible for Cenvat Credit. They stress that the extended period of limitation should not apply in a revenue-neutral scenario. The appellant cites multiple judgments to support their position, demonstrating that the demand against them is unjustified. On the other hand, the Revenue representative reiterates the findings of the impugned order, emphasizing the establishment of mens rea due to the demand being confirmed under the extended period. The Revenue relies on a Supreme Court judgment to support the imposition of penalties in cases where mens rea is established.

Upon careful consideration of both arguments and reviewing the records, the tribunal finds that the appellant's payment of service tax, along with interest, was eligible for Cenvat credit. The tribunal concludes that the demand was not sustainable due to the revenue-neutral nature of the situation and the absence of mala fide intention on the appellant's part. The tribunal distinguishes the case cited by the Revenue representative, emphasizing the need for mens rea to impose penalties under Section 78. As there is no mens rea in the present case, the tribunal sets aside the penalties imposed by the adjudicating authority and the Commissioner (Appeals), ultimately allowing the appeal in favor of the appellant.