REVENUE NEUTRALITY

[Mr. M. GOVINDARAJAN]

The concept of revenue neutrality is there in taxation matters especially in indirect taxes in which the Revenue does not lose or gain in any proceedings caused against an assessee.  This concept has been taken as defence by many assessees in replying show cause notice and in the proceedings.  The situation that amounts to revenue neutrality is not discussed any where in the Act or in the rules made there under.  The following case laws discuss about the situations which amount to revenue neutrality and which will not amount to revenue neutrarlity.

In ‘Piramal Healthcare Limited V. Commissioner of Central Excise & Service Tax, Indore’ – 2015 (5) TMI 211 - CESTAT NEW DELHI the appellant is required to pay service tax under reverse charge mechanism.  As the said provision of payment of service tax is not known to the appellant, the appellant did not pay the service tax under reverse charge mechanism in time.   If at all, they have paid the service tax in time, the same was available to them as CENVAT credit.  Therefore it is a situation of revenue neutrality.  The Tribunal accepted the contention of the appellant.  The Tribunal held that by not paying the service tax in time, the appellant has already suffered interest and have not taken credit of service tax paid.  The Tribunal held it is a situation of revenue neutrality.

In ‘Tatyasaheb Kore Warana SSK Limited V. Commissioner of Central Excise, Kholapur’ – 2015 (7) TMI 506 - CESTAT MUMBAI the appellant is a manufacturer of sugar and molasses.   They transport the goods to various locations and claim input service credit on outward transportation service.   The appellant has claimed input service credit on outward transportation for the following services:

• Transportation of sugar for levy sale up to railway station;
• Transportation of sugar in case of export up to the port of export;
• Transportation of raw sugar from their unit to their sister unit.

The Revenue was of view that as per Rule 2(l) of CENVAT Credit Rules, 2004 outward transportation charges are admissible as input service credit up to the place of removal and the transportations have been done beyond the place of removal, the appellant is not entitled to CENVAT credit for outward transportation service.

The Tribunal held that the appellant is entitled to take CENVAT credit as in the case of levy sugar the place of removal is the railway station and in the case of export the place of removal is load port.  The Tribunal further held that in this case the transportation cost has been borne by the appellant themselves.   If at all they have not taken the credit on the said transportation, then their sister unit is entitled to take credit which is the appellant themselves.   In these circumstances, whatever credit has been taken by them having revenue neutral situations   Therefore the Tribunal held that the appellant is not required to reverse the credit taken on transportation of dry sugar to this sister unit.

In ‘CCL Products (India) Limited V. Commissioner of Central Excise & Service Tax (Appeals), Guntur’ – 2012 (11) TMI 651 - CESTAT, Bangalore the Tribunal found that the assessee is a 100% EOU and the disputed service tax related to import of services from foreign based commission agents.   The assessee was required to pay the tax as a deemed service provider in terms of Section 66A.   Since the services were clearly the input services for the appellant, he was eligible  to get refund of service credit in terms of Rule 5 of CENVAT Credit Rules, 2004.   Under these circumstances their claim for revenue neutrality and consequently absence of intention to evade service tax is acceptable.

In ‘Tech Mahindra Limited V. Commissioner of Central Excise, Cochin’ – 2012 (8) TMI 597 - CESTAT, BANGALORE the applicant is an STP unit engaged in the development of customized software which they are exporting.   The agreement with the subsidiary refers not only to the activities of marketing the products of the appellant but also client services and other related services.   Apparently many of these activities take place only in foreign territory.   The Tribunal noted that the applicant is paying service tax under the category of IT services with effect from 16.05.2008 and in view of exporting the product/services they are receiving refund in terms of Rule 5 of CENVAT Credit Rules, 2004.  The Tribunal also agreed with the submission of the applicant that for the period prior to 18.04.2006 no service tax liability will attracted in respect of services provided by the applicant.  The Tribunal also agreed that it is a case of revenue neutrality.                                                                                                 

In ‘Vidarbha  Cricket Association V. Commissioner of Central Excise, Nagpur’ – 2014 (1) TMI 204 - CESTAT MUMBAI (LB) the appellant, a cricket association affiliated with BCCI having control of the ground for staging the match or extra match, granted exclusive rights at the ground to use the advertising sites to sell and exhibit advertising of any kind.  The sale of advertising rights is in relation to advertisement and the appellant has allowed the agencies to use the space for advertisement purposes.   The sales of rights to use for advertising cover the activities of appellant.  The sale of right to use the space for advertising purposes is integrally connected to use the space for advertising and, therefore, activity undertaken by the appellant is in relation to sale of space of advertisement.  The assessee’s plea that the sub contractor was not liable where main contract discharging service tax is not acceptable by the Tribunal.  The Tribunal held that every service provider is  to discharge the service tax liability on activity undertaken by him on consideration received by him.  The assessee and agents are distinct legal entities, hence concept of revenue neutrality is inapplicable in this case.

In ‘Lotte India Corporation Limited V. Commissioner of Central Excise, Pondicherry’ – 2014 (2) TMI 482 - CESTAT CHENNAI the Tribunal was of the view that the job worker or the appellant could have taken credit of service tax incidence was borne by the person paying duty on final product and appropriate procedure was followed.   However procedures laid down for taking credit cannot be passed based on argument of revenue neutrality or the argument that if not the appellant someone else could have been taken credit.   Because such interpretation can be raised in more of the disputes involving value added tax and the entire rule and procedures enabling proper verification of credits and duty payments can be circumvented.  Such an interpretation cannot be supported through decisions of Tribunal.

In ‘Forbes Marshall Private Limited V. Commissioner of Central Excise, Pune-I’ – 2015 (1) TMI 458 - CESTAT MUMBAI the Tribunal found that it is fact that duty having been paid by the appellants, they were entitled to take CENVAT credit which they have been taken.   The issue remains of deciding whether interest and penalties are to be demanded.  The Tribunal held that simply because a situation leads to revenue neutrality does not imply that tax need not be paid in time.   Where law requires tax to be paid it has to be paid as per time specified.   In this case the tax has been paid much later than the date on which it was due.   The time to be considered for interest purpose is this time between the due date and the payment day.   It cannot be said that the Government has not lost interest between the two dates.   The Tribunal held that interest is payable.

Thus revenue neutrality arises in cases of reverse charge mechanism, export of services etc., in which the service tax paid by them is eligible to take credit.  On following the concept of revenue neutrality the assessee cannot escape from paying service tax.   He should pay the service tax in time and if so the interest is liable to be paid by him.   In case the non payment of service tax is with intention to evade payment it would also attract penalty.