2019 (3) TMI 1180 - AT - Service Tax

Revenue neutrality - Reverse charge mechanism - appellant had received various taxable services from overseas service providers who do not have office in India and incurred charges/expenses in foreign currency - service tax not paid - Held that - It is seen that the appellants are liable to pay service tax in the present demand under reverse charge mechanism as per Section 66A of the Finance Act, 1994. It is very much true that in case the appellants pay the service tax on reverse charge basis, they would be eligible to avail credit on the said amount as a service recipient. Thus, the situation is truly a revenue neutral one. On such score, the appellant cannot be saddled with the allegation of intention to evade payment of service tax. Penalty - Held that - The Hon ble jurisdictional High Court in the case of C.C.E., Chennai-IV Vs. M/s. Tenneco RC India Pvt. Ltd. 2015 (7) TMI 342 - MADRAS HIGH COURT has observed that when the entire exercise is revenue neutral, the assessee could not have achieved any purpose by evading duty - Taking note of the fact that the situation is a revenue neutral one, this is a fit case for setting aside the penalty imposed under Section 78 of the Finance Act, 1994. Penalty set aside - rest of demand upheld - appeal allowed in part.

Summary

Issues:
Failure to pay service tax under reverse charge mechanism, imposition of penalties.

Analysis:
During the audit of accounts, it was discovered that the appellant had received various taxable services from overseas providers and incurred expenses in foreign currency without discharging service tax under reverse charge mechanism as required by Section 66A of the Finance Act, 1994. A Show Cause Notice was issued, leading to confirmation of demand, interest, and penalties by the Original Authority.

The appellant contended that they failed to pay service tax due to a genuine belief that they were not liable to do so under reverse charge mechanism. They paid the entire service tax with interest upon realization of the error. The appellant argued for setting aside the penalties, citing a revenue-neutral situation as they had paid the service tax and were eligible for CENVAT credit.

The respondent supported the penalties, asserting that the appellant's failure to pay service tax would not have been discovered without the Department's intervention, indicating suppression of facts. The respondent argued that the penalties and extended period for issuing the Show Cause Notice were legitimate.

After hearing both parties, the Tribunal acknowledged the appellant's liability to pay service tax under reverse charge mechanism but recognized the revenue-neutral nature of the situation. Citing a previous judgment, the Tribunal concluded that setting aside the penalty under Section 78 of the Finance Act, 1994 was appropriate in this case, as the appellant had paid the service tax and was eligible for credit.

Consequently, the Tribunal modified the impugned Order by setting aside the penalty under Section 78 while upholding the demand, interest, and other penalties imposed. The appeal was partially allowed on these terms, and the Department's Miscellaneous Application for a change of cause title was granted.