The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) held that the penalty is not imposable under Section 78 of the Finance Act, 1994 in case of revenue neutrality.
Show Cause Notice dated 23.10.18 was issued to the Appellant for demand of service tax of Rs.6,66,50,976/- on the services carried out by IVP-US and BACS in US and other parts of the world on behalf of the Appellant during the period April, 2013 to June, 17 along with interest and penalty under reverse charge mechanism, treating such services under the category of Business Auxiliary Service. The case was adjudicated and demand was confirmed along with interest and penalties imposed. Hence the present appeal before this Tribunal.
The Counsel for the Appellant argued that no penalty was imposable under Sections 78 & 77 of the Finance Act, 94 as the Appellant was apprising everything to the department by way of filing of ST-3 returns and that the proceedings are barred by limitation. Principle of revenue neutrality was also cited. It was contended that the impugned order is not proper and not sustainable.
Services which were provided by IVP US/UK were input services for the Appellant. In this case service tax was payable under reverse charge mechanism under notification No.30/12-ST dated 20.06.12 by the service recipient and the same was available for taking back in the form of Cenvat Credit. Thus, there was no gain to the government exchequer in that case. It is a case of revenue neutrality.
In the case of Jet Airways India Ltd, the Tribunal considered the issue of revenue neutrality where service tax was required to pay under reverse charge mechanism as service provider was foreign based firm. The Tribunal held that as the appellant could have availed CENVAT credit of the service tax paid on reverse charge mechanism, hence, a revenue neutral situation arises wherein appellant pays the tax and takes the credit and accordingly set aside the tax demand interest thereon and penalties.
A Two-Member Bench comprising PK Choudhary, Judicial Member and Sanjiv Srivastava, Technical Member observed that “As regards interest and penalty we find that the issue is no more res integra. Once demand is not sustainable, interest and penalty under Section 78 would not be imposable.”
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