2025-VIL-638-CESTAT-HYD-ST

SERVICE TAX CESTAT Cases

Service Tax - Reverse Charge Mechanism, Revenue Neutrality, Interest, Penalty - The Appellant is the Master License Agreement holder for software solutions developed by their parent company. They have been paying royalty to their parent company and the Department felt that the Appellant was required to pay service tax on this royalty under Reverse Charge Mechanism. The Department raised demand along with interest and penalty - Whether the demand for service tax is sustainable - HELD - The statutory provisions under Section 68 and Section 66B of the Finance Act, 1994 clearly require payment of service tax on the services received from the non-resident service provider under the RCM - The argument of revenue neutrality cannot be a generic defense to negate the statutory liability to pay service tax - The mechanism of Cenvat Credit under the Cenvat Credit Rules has its own conditions and limitations, and a hypothetical assumption that the Appellant would have got the credit if they had paid the tax earlier cannot override the statutory provisions. Therefore, the demand for service tax is upheld and the appeal is partly allowed with reduction in penalty - Whether interest under Section 75 is payable despite the revenue neutral situation - HELD - As per the settled position of law, interest under Section 75 is mandatorily payable on delayed/short payment of service tax, irrespective of whether the situation is revenue neutral or not. The Tribunal relied on various High Court and Supreme Court judgments which have consistently held that payment of interest is mandatory under Section 75 once short/non-payment of tax is established. The Tribunal, therefore, upheld the demand for interest - Whether penalty under Section 76 is imposable despite the revenue neutral situation - HELD - As per the settled position of law, penalty under Section 76 is imposable on short/non-payment of service tax, without the need to prove any malafide intent, fraud or suppression of facts. The Tribunal relied on various High Court and Tribunal judgments to conclude that the ground of revenue neutrality cannot be a defense against imposition of penalty under Section 76. However, considering the substantial compliance by the Appellant and absence of any allegations of suppression, fraud etc., the Tribunal modified the penalty amount from Rs. 42,98,732/- to Rs. 10,00,000/-.

Create Account



Log In



Forgot Password


Please Note: This facility is only for Subscribing Members.

Email this page



Feedback this page