2023 (7) TMI 1327 - AT - Service Tax

Penalties set aside for manufacturer-exporter due to revenue neutrality despite service tax liability on professional services

PGP GLASS PRIVATE LIMITED Versus C.C.E. & S.T. -SURAT-II

PGP GLASS PRIVATE LIMITED Versus C.C.E. & S.T. -SURAT-II - TMI Issues involved:The issues involved in the judgment are the taxability of services received from outside India, imposition of penalties for non-payment of service tax, availability of cenvat credit, and the time bar for the demand of service tax.Taxability of services received from outside India:The appellant, engaged in the manufacture of glass bottles, received various services from outside India related to market survey fees, export promotional expenses, technical fees, and consultant fees. While the appellant had been paying service tax on these services, an investigation revealed that tax was not paid on certain invoices. The Adjudicating Authority confirmed the demand for service tax, interest, and penalties. The appellant challenged the taxability of the services, arguing that they were exclusively related to the export of goods and hence not taxable under Rule 3(iii) of Taxation of Services Rules. The appellant also contended that the demand was time-barred based on previous judgments.Imposition of penalties for non-payment of service tax:The appellant argued that despite paying the service tax and interest, penalties were unjustly imposed by the Adjudicating Authority. They maintained that since the services were used for export purposes, the penalties were unwarranted. Citing various judgments, the appellant asserted that the demand was revenue neutral due to the availability of cenvat credit, rendering the penalties unsustainable.Availability of cenvat credit:The appellant claimed that the service tax paid was available as cenvat credit, making the situation revenue neutral. They relied on judgments supporting the notion that when an assessee is eligible for cenvat credit, the scenario becomes revenue neutral. The appellant argued that since the tax was not payable, the penalties imposed by the Adjudicating Authority were not justified.Time bar for the demand of service tax:The appellant contended that the demand was time-barred based on specific judgments. They argued that since the tax itself was not payable, the penalties imposed were consequential and therefore unsustainable. The appellant's position was supported by legal precedents emphasizing the importance of a revenue-neutral approach in such cases.Judgment summary:The Appellate Tribunal, after considering the submissions from both sides and examining the services received by the appellant, found that all services were indeed used in relation to the export of goods. As a result, the appellant was eligible for cenvat credit on the service tax paid under the reverse charge mechanism. The Tribunal concluded that the demand was revenue neutral, echoing established legal principles. Consequently, the penalties imposed by the Adjudicating Authority were set aside, while the service tax and interest were upheld. The impugned order was modified accordingly, with the appeals being allowed in favor of the appellant.