2026-VIL-1393-CESTAT-MUM-ST
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SERVICE TAX CESTAT Cases

Service Tax – Reverse Charge Mechanism on Legal Services – Revenue Neutrality – Appellant engaged in hiring construction machinery is registered with service tax authorities for STGU service – During audit department observed that appellant had received legal services from advocates but had not discharged service tax liability on such services under reverse charge mechanism as prescribed in Notification No. 30/2012-ST dated 20.06.2012 – Whether service tax demand on legal services received under reverse charge mechanism is sustainable when appellant is registered for taxable service and is eligible for CENVAT credit on input services – HELD – In respect of services provided by individual advocate or firm of advocates by way of legal services is a taxable service under Sections 65B(44) and 66B of Finance Act, 1994. Payment of service tax was shifted from service provider to service recipient in terms of entry at Section No.5 of Notification No. 30/2012-ST dated 20.06.2012 for administrative expediency. However, appellant is eligible to take CENVAT credit of input services availed in respect of providing taxable output services. Revenue neutral situation arises when service tax is paid on reverse charge mechanism and entire service tax is available as CENVAT credit to registered person. Where appellant could have availed CENVAT credit of service tax paid on reverse charge mechanism, revenue neutral situation arises wherein appellant pays tax and takes credit. By applying principle of revenue neutrality, which is settled in catena of judgments, no demand is sustainable where credit is available to assessee himself as the duty payable is modvatable and there is no revenue implication. Extended period of limitation cannot be invoked based solely on audit objection without establishing suppression of facts or malafide intention. Once demand is not sustainable, interest and penalty under Section 78 of Finance Act, 1994 are not imposable. In case of revenue neutrality, no penalty is imposable under Section 78 – The service tax demand is not sustainable. The impugned order is set aside and the appeal is allowed.
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