Tribunal rules in favor of appellant on service tax dispute, invalidating show-cause notice and waiving penalty.

The Tribunal held that the appellant is not liable for service tax on external commercial borrowing (ECB) charges pre-18.04.2006 as per CBEC Circular. Issuing a show-cause notice despite self-ascertainment of service tax payment was deemed unsustainable. The demand for service tax was found unsustainable for certain charges already paid by the appellant, leading to the invalidation of the show-cause notice and setting aside of the proceedings against the appellant. Penalty was waived, and the appeal was allowed with consequential relief to the appellant.

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Issues involved: Service tax liability on external commercial borrowing (ECB) charges remitted to a foreign bank, applicability of service tax prior to 18.04.2006, sustainability of show-cause notice, demand confirmation, imposition of penalty.

Summary:

Service Tax Liability on ECB Charges:
The appellant, engaged in electricity generation, raised capital through ECB with M/s ICICI Bank Limited. The Directorate General of Central Excise Intelligence (DGCEI) contended that charges remitted for obtaining ECB loans were taxable under Banking and Other Financial Services. The appellant argued that for ECB prior to 18.04.2006, no service tax mechanism existed. The Tribunal held that appellant is not liable for service tax on charges pre-18.04.2006 as per CBEC Circular.

Sustainability of Show-Cause Notice:
The appellant contended that issuing a show-cause notice despite self-ascertainment of service tax payment was not sustainable under Section 73(3) of the Finance Act, 1994. The Tribunal agreed, stating that as the appellant had already paid service tax with interest, the notice was unnecessary, rendering the proceedings against the appellant unsustainable.

Demand Confirmation and Penalty Imposition:
The Adjudicating Authority confirmed the demand of service tax with interest but waived penalty. The Tribunal found the demand unsustainable for certain charges where service tax was already paid by the appellant. The show-cause notice was deemed invalid, leading to the setting aside of the impugned proceedings against the appellant. The appeal was allowed with consequential relief to the appellant.

This judgment clarifies the applicability of service tax on ECB charges, the necessity of show-cause notices, and the implications of self-ascertained service tax payments on legal proceedings.

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