No Deliberate Non-Compliance In Depositing Service Tax Under RCM: CESTAT Deletes Penalty

The appellant/assessee is rendering service of accommodation in a hotel and restaurant service. Pursuant to the audit, it appeared to the department that the appellant had not discharged service tax on three invoices of legal services/fee of an advocate, totalling Rs. 41,000, attracting service tax under RCM of Rs. 5540. Pursuant to the audit note, a show cause notice was issued, proposing to demand tax and also proposing to impose a penalty. The appellant admitted the liability and deposited the service tax of Rs. 5540. However, the amount was confirmed and appropriated and a further equal amount of penalty was imposed under Section 78, observing that had the audit not taken notice, the tax liability would have escaped.

The appellant filed the appeal before the Commissioner (Appeals), who confirmed the penalty.

The appellant contended that there was no deliberate non-compliance in depositing the tax under the RCM. It was only due to clerical mistakes that the tax could not be deposited. As the appellant is paying output tax and legal services are input services, they are entitled to Cenvat credit and, thus, the situation is revenue neutral. Accordingly, the penalty cannot be imposed.

The CESTAT held that there is no deliberate non-compliance and, further, the situation is wholly revenue neutral. Thus, there was no incentive for the appellant to evade payment of service tax under the RCM.

Case Title: M/s Umed Bhawan Palace Versus Commissioner, CGST, Excise Customs- Udaipur

Citation: Service Tax Appeal No. 51371 of 2019

Dated: 22.07.2022

Counsel For Appellant: Advocate Anurag Soan

Counsel For Respondent: AR Ishwar Charan

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