Foreign Parent Company Royalty Payments Taxed Under Reverse Charge Mechanism Despite Revenue Neutrality Claims

CESTAT upheld the service tax demand on royalty payment to foreign parent company under Reverse Charge Mechanism. The tribunal rejected the appellant's revenue neutrality defense, finding it insufficient to nullify the tax demand. While acknowledging substantial compliance by the appellant, who paid the unpaid service tax before the show cause notice, the tribunal modified the penalty from maximum permissible to Rs. 10,00,000. The core legal principle affirmed was that revenue neutrality cannot be a generic defense against statutory tax obligations. The appellate order was largely sustained with a partial modification of the penalty quantum. .....

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