Mec Shot Blasting Equipment P. Ltd. Vs Commissioner of Central Goods and Service Tax (CESTAT Delhi)
Summary: The CESTAT Delhi Principal Bench considered an appeal by Mec Shot Blasting Equipment (P) Ltd. concerning service tax payable under the reverse charge mechanism on manpower recruitment or supply services received during 1 July 2012 to 31 March 2014. The original adjudication confirmed service tax of Rs. 4,69,087 with interest and penalties. On appeal, the Commissioner (Appeals) sustained a demand of Rs. 2,12,386 with interest and reduced the Section 78 penalty to Rs. 1,06,193.
The appellant submitted that payment of service tax under reverse charge would have entitled it to corresponding CENVAT credit, making the transaction revenue-neutral. It also argued that the payments were recorded in audited books and made through banking channels, so there was no suppression or intent to evade tax warranting the extended limitation period. The Department opposed the revenue-neutrality argument, pointing to non-payment and allegedly incorrect ST-3 returns.
The Tribunal distinguished liability to pay service tax from entitlement to credit. It held that CENVAT credit arises subject to the applicable rules and after payment of the tax; the possibility of later credit cannot discharge the original reverse-charge liability. Accordingly, the appellant remained liable to pay service tax on the taxable services received.
On limitation, however, the Tribunal held that where the recipient would simultaneously be entitled to CENVAT credit of the reverse-charge tax paid, the extended period could not be invoked. Relying on South Eastern Coalfields Ltd., it rejected invocation of the extended period and set aside the Section 78 penalty. Any demand within the normal period and the Section 77 penalty were upheld. The appeal was allowed to that extent.
Cases Discussed
- Texyard International v. Commissioner of Central Excise — 2015 (40) STR 322 (Tri.);
- Commissioner of Central Excise v. Coca Cola India Pvt. Ltd. — 2007 (123) ELT 490 (SC);
- Satyam Enterprises — Final Order No. 56255/2017 dated 21.08.2017;
- Amco Batteries Ltd. v. Commissioner of Central Excise — 2003 (153) ELT 7 (SC);
- Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd. — AIR 1999 SC 3234;
- Commissioner of Central Excise and Service Tax, Indore v. Cummins Technologies India Limited — 2017 (7) GSTL 69 (Tribunal-Delhi);
- South Eastern Coalfields Ltd. v. Commissioner, CGST Customs & Central Excise — Final Order No. 59414/2024 dated 06.11.2024. The source also mentions Asmitha Microfin Ltd. and Jet Airways (India) Ltd. within a quoted precedent without full citations.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s Mec Shot Blasting Equipment (P) Limited1have filed this appeal against the impugned Order-in-Appeal No. 326 (CKJ)/ST/UDR/2018 dated 03/07/2018 whereby the Commissioner (Appeals) upheld the Order-in-Original to the extent of demand of service tax of Rs. 2,12,386/- along with interest and reduced the penalty to Rs. 1,06,193/- under Section 78 of the Finance Act, 1994.
2. The brief facts of the case are that the appellant was engaged in manufacturing of excisable goods falling under chapter 84 and availing Cenvat credit of duty and tax paid on input and input services. They were also registered under section 69 of the Finance Act, 1994 for discharging the service tax liability payable by them. During the period from 01.07.2012 to 31.03.2014, the appellant had paid a sum of Rs.50,60,273/- to various service providers towards providing of manpower recruitment or supply agency services. The appellant being body corporate and service provider being an individual, therefore, they were liable to deposit service tax of Rs.4,69,087/- under reverse charge mechanism as per Notification No.30/2012-ST dated 20.06.2012.Show Cause Notice dated 18.01.2016 was issued to the appellant for demand of service tax of Rs.4,69,087/- along with interest under provisions of section 73 and 75 of the Finance Act, 1994. Penalties were also proposed to be imposed upon them under section 76, 77 and 78 of the Act.The Adjudicating Authority vide the Order-in-Original dated 24.01.2017 confirmed the demand of service tax amounting to Rs. 4,69,087/- including cesses along with interest under section 75 and penalty of Rs.4,69,087/- under section 78 and Rs.20,000/- under section 77 of the Act. Being aggrieved with the said order, the appellant filed an appeal before Commissioner (Appeals). Vide the impugned order, the Commissioner (Appeals) upheld the demand for Rs. 2, 12, 386/- along with interest and reduced the penalty of Rs. 1,06,193/-. Aggrieved by the said order, the appellant filed the present appeal.
3. Learned Chartered Accountant appearing for the appellantsubmitted th at this demand was not sustainable on the principle of ‘revenue neutrality’ as the appellant was entitled to Cenvat credit of tax so demanded and such credit would have been utilized for discharging duty on excisable goods manufactured by the appellant or for discharging service tax on output services provided by the appellant (like commissioning and installation services in which the manpower was used). The appellant was regularly paying duty of excise and service tax. Learned Chartered Accountant relied on the decision of the Tribunal in the case of Texyard International versus Commissioner of Central Excise2wherein the Tribunal held that service tax was payable under reverse charge but since the appellant were eligible for Cenvat credit, therefore, demand was dropped on the grounds that the entire exercise was revenue neutral. He further contended that the Supreme Court in Commissioner of Central Excise Vs. Coca Cola India Pvt. Ltd.3 had held that when assessee is eligible to Modvat credit, the situation becomes revenue-neutral. The Tribunal vide Final Order No. 56255/2017 dt. 21.08.2017 in the case of Satyam Enterprises also held that the demand is not sustainable due to situation of neutrality.
3.1 Learned Chartered Accountant further contended that the demand was hit by limitation. The entire transactions were duly recorded in the Books of Accounts and the payments were made through banking channel. He submitted that the non-payment of tax was noticed during the course of audit of records of the appellant. Since, the transactions were a part of audited Books of Accounts, therefore, suppression and intent to evade cannot be alleged. It was a case of non-payment of tax under bona fide belief. He submitted that the appellant was eligible for Cenvat credit of the tax demanded, therefore, in view of decision given by Hon’ble Supreme Court in the case of Amco Batteries Ltd. Vs. Commissioner of Central Excise4there was no reason for the appellant to suppress and hence, extended period limitation was not invocable. As demand was not sustainable, therefore, interest was also not recoverable and penalty imposed was not sustainable.
4. Learned Authorized Representative for the Department submitted that the Commissioner (Appeals) in para 6 of Order-in-Appeal had observed that in respect of amount of Rs.22,91,105/-paid to service provider (M/s Aditya Construction and M/s Petrochem Solution), no documentary evidence was submitted to substantiate their claim that services provided by these persons was not covered under manpower supply services and hence they were not liable to pay service tax under Notification no.30/2012-ST dated 20.06.2012.The claim of revenue neutrality by the appellant is not acceptable as the appellant did not pay service tax under Reverse Charge Mechanism for the period 01.07.2012 to 31.03.2014. This non-payment was a loss to Government Exchequer and it cannot be presumed that had the duty been paid, the credit would have been admissible and available. The concept of revenue neutrality in nature cannot be an excuse for non-payment of tax. If such a contention was accepted, the very concept of credit chain would be obsolete. The appellant had failed to properly assess the service tax liability and also failed to reflect the correct information in ST-3 returns. They suppressed the material facts and misrepresented their case with an intent to evade the duty. During the course of audit, the department detected that they had not paid their service tax liability. The appellant was requested to deposit their dues. However, Appellant vide letter dated 10.08.2015 stated that they were not liable to pay service tax under RCM and further stated that even otherwise also, in view of principle of revenue neutrality, demand was not sustainable.
5. We have heard the learned counsel for the appellant, learned AR for Revenue and perused the records.
6. Learned Counsel has primarily relied on the submissions that as the appellant was to pay the service tax under RCM, and could avail Cenvat Credit of such payment, hence it is revenue neutral. In this context, it is important to note that the liability to service tax arises under section 66A of the Finance Act 1994 on the provider’s taxable event. It is not contingent on the recipient’s entitlement to credit. Taking Cenvat credit is conditional, dependent on the provisions of the relevant Rules. Credit of tax paid under section 68(2) arises under Rule 3(1)(vii) Cenvat Credit Rules 2004 only upon payment. Rule 4(7) CCR, read with Rule 9 makes payment the condition precedent. The judgment by Supreme Court in Collector of Central Excise, Pune versus Dai Ichi Karkaria Ltd.5 has held that credit is a concession, subject to the Rules, not an accrued right. The right to avail Cenvat Credit arises only when the service tax paid. Hence, the duty liability does not get extinguished based on the fact that the appellant was eligible to avail Cenvat credit of the service tax paid under RCM. We draw support from the Tribunal’s decision in Commissioner of Central Excise and Service Tax, Indore versus Cummins Technologies India Limited[2017 (7) GSTL 69 (Tribunal-Delhi)] wherein the Tribunal held as follows:-
“6. Section 66 of the Finance Act, 1994 is the charging Section, which provides that in respect of taxable services mentioned therein, service tax shall be levied and collected in such manner as may be prescribed. Even for the import of service, the service tax has to be levied under Section 66 ibid. Since a deeming fiction was created in Rule 66A ibid, providing for payment of service tax by the recipient of service, such levy is in consonance with the charging provisions contained in Section 66 ibid. Thus, the provisions of Chapter V of the Finance Act should also be applicable in respect of the service tax paid under Section 66A ibid. In the present case, since the appellant is liable to pay service tax as a recipient of the taxable service, the provision of Section 66 ibid should also be applicable to it. In other words, upon fixing the responsibility for payment of service tax under reverse charge mechanism, no distinction can be placed between the service receiver and service provider for the purpose of Section 66 ibid.”
7. In view of the above, we hold that the appellant is liable to pay service tax under RCM on such services as recipient of the services.
8. We now address the submissions related to the invocation of the extended period. We note that it is settled position of law that if the recipient of the service is liable to pay the service tax, and simultaneously eligible to avail the Cenvat Credit on such tax paid by him, then extended period cannot be invoked. We draw support from this Tribunal’s decision in M/s South Eastern Coalfields Ltd versus Commissioner, CGST Customs & Central Excise, in Service Tax Appeal No. 50412 of 2024 vide Final Order No. 59414 of 2024 dated 06.11.2024. The Tribunal held as under: –
“8. The other submission of the learned Counsel for the appellant is based on the principle of revenue neutrality. The Tribunal in the case of Asmitha Microfin Ltd. (supra) has already held that the entire demand is under reverse charge mechanism, and if the applicant had paid the service tax, they would have been entitled to Cenvat credit of exactly the same amounts and, therefore, the revenue neutrality is evident. Referring to the decision of the Apex Court in Jet Airways (India) Ltd. that extended period of limitation cannot be invoked in revenue neutral cases, it was held that the entire demand is hit by limitation and is accordingly set aside. Same principle would apply in the present case and there is no reason to differ from the same as the entire demand proposed in the show cause notice falls within the extended period of limitation and, therefore, is liable to be set aside.”
9. In view of the above discussions, we hold that the invocation of the extended period is not correct. The penalty under Section 78 is also set aside. However, the demand for the normal period, if any, is upheld, along with penalty under Section 77 imposed on the appellant.
10. Consequently, the impugned order stands modified and the appeal is allowed to the extent indicated above.
(Pronounced on 16.10.2026)
Notes:
1 The appellant
2 2015 (40) STR 322 (Tri.)
3 2007 (123) ELT 490 (SC)
4 2003 (153) ELT 7 (SC)
5 AIR 1999 SC 3234
