2026-VIL-1776-CESTAT-DEL-ST
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SERVICE TAX CESTAT Cases

Service Tax - Revenue Neutrality as a Defence to Reverse Charge Liability on Manpower Recruitment or Supply Agency Service under Notification No. 30/2012-ST - Appellant, a body corporate, paid various individual service providers for manpower recruitment or supply agency services and did not pay service tax under reverse charge - Commissioner (Appeals) upheld the demand in part with interest, and Appellant contended that the demand is revenue neutral since it was entitled to Cenvat credit of the tax demanded - Revenue contended that non-payment was a loss to the exchequer and that revenue neutrality cannot excuse non-payment, as otherwise the credit chain would be obsolete - Whether the Appellant is liable to pay service tax under reverse charge notwithstanding its eligibility to Cenvat credit - HELD - Liability to service tax under Section 66A arises on the provider's taxable event and is not contingent on the recipient's entitlement to credit. Credit of tax paid under Section 68(2) arises under Rule 3(1)(vii) of the Cenvat Credit Rules, 2004 only upon payment, and Rule 4(7) read with Rule 9 makes payment the condition precedent. Credit is a concession subject to the Rules and not an accrued right. The duty liability therefore does not get extinguished because the Appellant was eligible to avail Cenvat credit. No distinction can be placed between the service receiver and the service provider for the purpose of the charging Section once responsibility is fixed under reverse charge - The Appellant is liable to pay service tax under reverse charge as recipient of the services - Extended Period of Limitation and Penalty under Section 78 of Finance Act, 1994 where Recipient Liable under Reverse Charge is Eligible to Cenvat Credit - Non-payment of tax was noticed during audit, the transactions were recorded in the books and paid through banking channel, and Appellant contended that it acted under a bona fide belief and was entitled to Cenvat credit of the tax demanded - Revenue contended that the Appellant failed to assess its liability, did not reflect correct information in the returns and suppressed material facts with intent to evade duty - Whether the extended period was validly invoked and the penalty under Section 78 is sustainable - HELD - It is a settled position of law that if the recipient of the service is liable to pay service tax and is simultaneously eligible to avail Cenvat credit of the tax paid, the extended period cannot be invoked - The invocation of the extended period is not correct and the penalty under Section 78 is set aside, while the demand for the normal period, if any, is upheld along with the penalty under Section 77, and the appeal is allowed to that extent.
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