Service tax on foreign consulting services could not be shifted to the recipient absent agency or no office in India.

Service tax on consulting engineer services rendered by a foreign firm could not be fastened on the Indian recipient merely because the recipient paid under the contract or provided office and allied facilities. Under the unamended Rule 6(1) of the Service Tax Rules, liability lay on the foreign service provider or, where applicable, its agent or authorised person, and the recipient was not liable on that basis. After the 16-8-2002 amendment, tax could be shifted to the recipient only if the foreign provider had no office in India. On the stated facts, the foreign consultant was treated as having an office in India, so the demand and penalty were unsustainable.

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Issues: Whether service tax on consulting engineer services rendered by a foreign firm could be demanded from the Indian service recipient for the period prior to and after the 16-8-2002 amendment, including where the foreign service provider had an office in India.

Analysis: The liability under the unamended Rule 6(1) of the Service Tax Rules lay on the foreign service provider or, where applicable, on its agent or authorised person; the service recipient was not brought within that liability merely because it made payment under the contract. The contractual arrangements showing that the recipient provided office and allied facilities to the foreign consultant did not make the recipient the consultant's agent or authorised person. After the amendment with effect from 16-8-2002, service tax could be shifted to the recipient only when the foreign service provider had no office in India. On the facts, the foreign consultant was treated as having an office in India through the facilities provided under the contract, so the demand could not be sustained on the recipient.

Conclusion: Service tax could not be demanded from the assessee either for the pre-amendment period or for the post-amendment period, and the demand and penalty were unsustainable.

Ratio Decidendi: A service recipient is not liable for service tax on services rendered by a foreign consultant unless the recipient is shown to be the consultant's agent or authorised person under the unamended rule, or the foreign provider has no office in India under the amended rule.

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