Revenue-neutral service tax dispute: bona fide mistaken payment and credit adjustment defeated the demand and equal penalty.

Service tax paid under a bona fide mistaken belief and CENVAT credit availed for the same period were treated as revenue-neutral, so the amount already paid could be adjusted against the demand. The Tribunal did not finally decide whether the service was an intermediary service, but held that the Revenue suffered no loss on the facts presented and that the impugned demand and equal penalty could not be sustained merely on the mistaken availment. The order disallowing CENVAT credit and confirming tax with penalty was therefore set aside.

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Issues: Whether the demand of service tax and equal penalty arising from disallowance of CENVAT credit on services received from a foreign service provider was sustainable, and whether the tax already paid could be adjusted in a revenue-neutral situation.

Analysis: The Tribunal did not enter a final finding on whether the service was an intermediary service. It held that service tax paid under a mistaken belief and credit availed bona fide, for the same period, should not cause loss to the Revenue. On that basis, the amount paid could be adjusted against the demand raised, and the revenue-neutral character of the transaction supported interference with the impugned order.

Conclusion: The demand of service tax and the equal penalty were not sustainable, and the appeal was allowed.

Final Conclusion: The impugned order disallowing the CENVAT credit and confirming the tax demand with penalty was set aside, granting full relief to the appellant.

Ratio Decidendi: Where tax is paid and credit is availed under a bona fide mistake for the same period, and the situation is revenue-neutral, the demand and penalty cannot be sustained merely on that mistaken availment.

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