📌 Introduction: Why This CESTAT Decision Matters
The Delhi CESTAT recently ruled in Indure Private Ltd vs. Commissioner of Service Tax, bringing immense relief to taxpayers facing service tax under the reverse charge mechanism (RCM). While recognizing service tax liability on foreign commissions, the Tribunal struck down extended limitation, interest, and penalty on grounds of revenue neutrality. For practitioners and businesses, this sets a precedent—especially for cases where input credits neutralize output liability.
1. Understanding the CESTAT Judgment
Case Name: Indure Private Limited vs. Commissioner of Service Tax (Delhi CESTAT, June 2025)
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Service tax was levied on foreign “selling commissions” via RCM.
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Revenue invoked normal and extended periods of limitation, along with interest and penalties.
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The Tribunal upheld tax under RCM but found no malafide intent because taxes paid were eligible for offset through Cenvat credit—leading to a revenue-neutral situation
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Relief granted: only normal period, dropping extended demand, interest, and penalties.
2. Revenue Neutrality: What It Means
⚖️ Definition & Legal Precedents
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Revenue neutrality occurs when taxes paid (via RCM) are fully creditable or refundable—meaning the government neither gains nor loses monetarily
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Supported by landmark Supreme Court cases, including Formica India and CESTAT in British Airways and Jet Airways, the doctrine consistently blocks extended limitation when neutrality exists
🧾 Extended Period Triggers
Extended period applies only when there's fraud, suppression, collusion, or intent to evade tax per Section 73(1) proviso . If liability is revenue neutral, there's no intent—so extended demand is unjustified.
3. Key Takeaways from Indure Verdict
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✅ Only normal 3-year limitation applies.
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✅ Interest and penalties are waived when revenue neutrality is proven.
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✅ Helps taxpayers avoid harsh demands due to honest misinterpretation.
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⚠️ However, neutrality won’t save cases involving fraud or suppression
4. Real-World Examples
Example 1: Import of Service
A Kolkata-based IT exporter paid foreign consultancy charges via RCM, but fully claimed Cenvat. CESTAT held extended limitation inapplicable due to revenue neutrality
Example 2: Backdated Agreement
An Ahmedabad manufacturer under RCM claimed job work but submitted a backdated contract. CESTAT found fraudulent intent, rejected revenue neutrality defence, upheld extended limitation, but imposed only normal period penalty for second SCN
5. Comparative Chart: When Neutrality Works vs Doesn’t
| Scenario | Revenue Neutral? | Extended Period | Interest & Penalty |
|---|---|---|---|
| Honest RCM payment with credit claim | ✅ Yes | ❌ Not applicable | ❌ Waived |
| Fraud (e.g., backdated docs) | ❌ No | ✅ Applicable | ✅ Imposed |
6. Practical Tips to Safeguard Your Business
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Maintain RCM documentation: Invoices, foreign payment proof, credit entries.
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Timely claim input credits: Ensures neutrality.
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Disclose all RCM transactions in returns; transparency minimizes audit risk.
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Avoid suspicious contracts: Backdated or inflated documents can nullify neutrality.
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Watch the 3‑year window: Stay updated on demand dates.
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Be audit‑ready: Ensure records to justify neutrality.
7. Broader Implications for Tax Practitioners
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Shifts focus to procedural correctness, not tax outflow, in audits.
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Positions revenue neutrality at the core of RCM litigation.
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Encourages jurisprudential consistency: when tax is creditable, no extended scrutiny.
✅ Conclusion: A Win for Honest Taxpayers
The Indure ruling strengthens the revenue neutrality doctrine, curtailing extended limitation, interest, and penalties in genuine RCM cases. However, taxpayers must maintain robust records and avoid any appearance of misrepresentation. Practitioners should proactively integrate neutrality-based defenses into compliance strategies and appeals.
📌 FAQs
Q1: What is revenue neutrality?
Tax paid under RCM is fully creditable/refundable, ensuring no net fiscal impact on the taxpayer.
Q2: How long is the normal limitation period?
Typically 3 years from the date tax was due or return was filed.
Q3: When can extended limitation apply?
If there’s evidence of fraud, suppression, or evasion under Section 73(1) proviso.
Q4: Can revenue neutrality waive penalties?
Yes—as seen in Indure’s case, neutrality can block penalties and interest.
Q5: How do I prove neutrality?
Submit evidence: invoices, RCM payment records, credit ledger entries.
Keywords:
Revenue neutrality CESTAT, extended limitation service tax, RCM service tax penalty, revenue neutrality service tax, CESTAT revenue neutrality ruling
