1. Appeal against service tax demand under reverse charge mechanism, where assessee contested liability citing revenue neutrality and time-bar issues regarding manpower supply services. (Para 1 , 2 )
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2026 Supreme(Online)(CESTAT) 3892
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL NEW DELHI
Ajay Sharma, J, Hemambika R. Priya, Technical Member
Mec Shot Blasting Equipment P. Ltd. – Appellant
Versus
Commissioner of Central Goods and Service Tax – Respondent
Service Tax Appeal No. 50469 of 2019
Important Points
Liability to pay service tax under RCM exists regardless of Cenvat credit eligibility; however, such revenue neutrality precludes the invocation of the extended period of limitation for recovering the tax.
Subject
Tax - Service Tax
Act Referred
Finance Act, 1994: S.66, S.66A, S.68(2), S.69, S.73, S.75, S.76, S.77, S.78
Cenvat Credit Rules, 2004: R.3(1)(vii), R.4(7), R.9
Cenvat Credit Rules, 2004: R.3(1)(vii), R.4(7), R.9
Headnote
(A) Service Tax - Reverse Charge Mechanism (RCM) - Revenue Neutrality - The liability to pay service tax under RCM is not extinguished by the recipient's eligibility to avail Cenvat credit, as the right to credit is a concession subject to the condition of prior payment. (Para 6, 7)
(B) Limitation - Extended Period - Revenue Neutrality - Where the recipient of service is liable to pay service tax under RCM and is simultaneously eligible to avail Cenvat credit on such tax, the invocation of the extended period of limitation is impermissible. (Para 8, 9)
Issues: Whether the demand for service tax under RCM is sustainable despite revenue neutrality and whether the extended period of limitation was correctly invoked.
(B) Limitation - Extended Period - Revenue Neutrality - Where the recipient of service is liable to pay service tax under RCM and is simultaneously eligible to avail Cenvat credit on such tax, the invocation of the extended period of limitation is impermissible. (Para 8, 9)
Issues: Whether the demand for service tax under RCM is sustainable despite revenue neutrality and whether the extended period of limitation was correctly invoked.
Legal Category Hierarchy
Advocates:
For the Appellants/Petitioners: Om P. Agarwal
For the Respondents: Anil Kumar
For the Appellants/Petitioners: Om P. Agarwal
For the Respondents: Anil Kumar
Table of Contents
2. Appellant contended that demand was revenue neutral due to Cenvat credit eligibility and time-barred; Revenue argued liability exists regardless of credit and suppression occurred. (Para 3 , 4 )
3. Court observed that service tax liability under reverse charge is not contingent on credit availability and payment is a condition precedent to availing such credit. (Para 5 , 6 , 7 )
4. Extended period of limitation cannot be invoked when an assessee is both liable to pay service tax under reverse charge and eligible to claim corresponding Cenvat credit. (Para 8 , 9 )
5. Appeal partially allowed; confirmed demand for normal period of limitation and upheld relevant penalties, while setting aside demand for extended period. (Para 9 , 10 )
6. Does the principle of revenue neutrality extinguish the primary liability to pay service tax under the reverse charge mechanism?
No, the liability to pay service tax as a service recipient is governed by charging provisions and is not contingent on the recipient's ability to avail Cenvat credit. Payment of the tax is the condition precedent to availing credit. (Para 6 , 7 )
7. Can the extended period of limitation be invoked when the tax assessed is eventually available to the assessee as Cenvat credit?
No, where the recipient of service is liable to pay tax and simultaneously eligible to avail Cenvat credit of such tax, the extended period of limitation cannot be invoked due to the absence of intent to evade duty. (Para 8 , 9 )
HEMAMBIKA R. PRIYA
M/s Mec Shot Blasting Equipment (P) Limited1The appellant have filed this appeal against the impugned Order-in-Appeal No. 326 (CKJ)/ST/UDR/2018 dated 03/07/2018 whereby the Commissioner (Appeals) upheld the Order-in-Original to the extent of demand of service tax of Rs. 2,12,386/- along with interest and reduced the penalty to Rs. 1,06,193/- under Section 78 of the Finance Act, 1994.
2. The brief facts of the case are that the appellant was engaged in manufacturing of excisable goods falling under chapter 84 and availing Cenvat credit of duty and tax paid on input and input services. They were also registered under section 69 of the Finance Act, 1994 for discharging the service tax liability payable by them. During the period from 01.07.2012 to 31.03.2014, the appellant had paid a sum of Rs.50,60,273/- to various service providers towards providing of manpower recruitment or supply agency services. The appellant being body corporate and service provider being an individual, therefore, they were liable to deposit service tax of Rs.4,69,087/- under reverse charge mechanism as per Notification No.30/2012-ST dated 20.06.2012. Show Cause Notice dated 18.01.2016 was issued to the appellant for demand of service tax of Rs.4,69,087/- along with interest under provisions of section 73 and 75 of the Finance Act, 1994. Penalties were also proposed to be imposed upon them under section 76, 77 and 78 of the Act. The Adjudicating Authority vide the Order-in-Original dated 24.01.2017 confirmed the demand of service tax amounting to Rs. 4,69,087/- including cesses along with interest under section 75 and penalty of Rs.4,69,087/- under section 78 and Rs.20,000/- under section 77 of the Act. Being aggrieved with the said order, the appellant filed an appeal before Commissioner (Appeals). Vide the impugned order, the Commissioner (Appeals) upheld the demand for Rs. 2, 12, 386/- along with interest and reduced the penalty of Rs. 1,06,193/-. Aggrieved by the said order, the appellant filed the present appeal.
3. Learned Chartered Accountant appearing for the appellant submitted that this demand was not sustainable on the principle of ’revenue neutrality’ as the appellant was entitled to Cenvat credit of tax so demanded and such credit would have been utilized for discharging duty on excisable goods manufactured by the appellant or for discharging service tax on output services provided by the appellant (like commissioning and installation services in which the manpower was used). The appellant was regularly paying duty of excise and service tax. Learned Chartered Accountant relied on the decision of the Tribunal in the case of Texyard International versus Commissioner of Central Excise 22015 (40) STR 322 (Tri.) wherein the Tribunal held that service tax was payable under reverse charge but since the appellant were eligible for Cenvat credit, therefore, demand was dropped on the grounds that the entire exercise was revenue neutral. He further contended that the Supreme Court in Commissioner of Central Excise Vs. Coca Cola India Pvt. Ltd. 32007 (123) ELT 490 (SC) had held that when assessee is eligible to Modvat credit, the situation becomes revenue-neutral. The Tribunal vide Final Order No. 56255/2017 dt. 21.08.2017 in the case of Satyam Enterprises also held that the demand is not sustainable due to situation of neutrality.
3.1 Learned Chartered Accountant further contended that the demand was hit by limitation. The entire transactions were duly recorded in the Books of Accounts and the payments were made through banking channel. He submitted that the non-payment of tax was noticed during the course of audit of records of the appellant. Since, the transactions were a part of audited Books of Accounts, therefore, suppression and intent to evade cannot be alleged. It was a case of non-payment of tax under bona fide belief. He submitted that the appellant was eligible for Cenvat credit of the tax demanded, therefore,
