Tribunal rules in favor of appellant on service tax liability issue

The tribunal ruled in favor of the appellant, finding that they were not liable to pay service tax on the provision amount made in their books of accounts. The tribunal noted that the appellant's approach was revenue-neutral as the service tax paid was available as Cenvat Credit, resulting in no loss or gain. Additionally, the tribunal found that there was no intention to evade payment, as the appellant had paid the entire amount along with interest before the show-cause notice was issued. The appellant's utilization of Cenvat Credit and compliance with Section 73(3) of the Finance Act, 1994, led to the appeal being allowed.

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Issues:
- Liability to pay service tax on provision made in books of accounts
- Suppression of fact by the appellant
- Availability of Cenvat Credit and revenue neutrality
- Applicability of Section 73(3) of the Finance Act, 1994

Liability to pay service tax on provision made in books of accounts:
The case involved the appellants paying consideration to their group companies outside India for various services. The departmental officers observed that the appellants failed to discharge the service tax liability on certain amounts for which provisions were made in their books of accounts. The issue was whether the appellants were liable to pay service tax on the provision amount as per the amended explanation in Section 67 of the Finance Act, 1994. The tribunal noted that the appellants had inadvertently followed the old provision where service tax was payable only on actual receipt of payment. The tribunal found that the appellants were not evading payment but had a revenue-neutral approach as the service tax paid was available as Cenvat Credit, resulting in no loss or gain to either party.

Suppression of fact by the appellant:
The appellant argued that there was no intention to evade service tax, as they had paid the entire amount along with interest before the show-cause notice was issued. The appellant contended that the suppression of fact was not established as they had followed the provisions prevailing before the amendment in May 2008. The tribunal agreed with the appellant's submission that the entire exercise was revenue neutral and that there was no intention to avoid payment of service tax. The tribunal found that the appellant had exercised the option under Section 73(3) by intimating the department before the issuance of the show-cause notice.

Availability of Cenvat Credit and revenue neutrality:
The Revenue argued that the availability of Cenvat Credit did not absolve the appellant from the liability to pay service tax on the services received from foreign providers. However, the tribunal held that due to revenue neutrality and the availability of Cenvat Credit, the demand for service tax could not be avoided. The tribunal emphasized that the appellant had paid the service tax before the show-cause notice and had utilized the Cenvat Credit, resulting in no loss or gain.

Applicability of Section 73(3) of the Finance Act, 1994:
The appellant had intimated the department about their payment of service tax and interest before the issuance of the show-cause notice, invoking the provisions of Section 73(3). The tribunal found that the appellant's action of opting for Section 73(3) and paying the service tax before the notice was issued meant that the department was not supposed to issue a show-cause notice. Consequently, the tribunal allowed the appeal in favor of the appellant.

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