Revenue-neutral reverse charge tax disputes can defeat extended limitation and penalties where immediate CENVAT credit is available.

Services of foreign architects or engineers used for design work are liable to service tax under reverse charge, and the corresponding CENVAT credit may be available immediately. On that basis, the text states that the matter was treated as revenue neutral. Applying the principle in Jet Airways, it says the extended period of limitation was not invokable in a revenue-neutral case, so the demand was time-barred and penalties were not imposable.

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Issues: Whether the demand of Service Tax raised by invoking the extended period of limitation was sustainable in a revenue-neutral situation where the appellant was entitled to avail immediate CENVAT credit of the tax payable under reverse charge mechanism.

Analysis: The appellant was liable to pay Service Tax under reverse charge mechanism for services received from abroad, but was simultaneously entitled to take corresponding CENVAT credit immediately. On these facts, the matter was held to be revenue neutral. In such a situation, the extended period of limitation was held to be unavailable. As the show cause notice had been issued by invoking the extended period, the entire demand was held to be time-barred and the penalty was found unsustainable.

Conclusion: The demand of Service Tax was held to be barred by limitation and not sustainable, and no penalty could survive.

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