Foreign service provider outside India not liable for service tax before recipient-liability amendment under the Finance Act

Service tax on consultancy services rendered by a foreign company with no business establishment in India was treated as not chargeable under the Finance Act, 1994 as it then stood. Section 64 was read as confining the service tax chapter to India, except Jammu and Kashmir, so the foreign provider fell outside the levy for the period before the 16.08.2002 amendment that shifted liability to the recipient. On that basis, recovery from the foreign company was disallowed and the appeal was allowed.

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Issues: Whether service tax under the Finance Act, 1994 could be levied on a foreign company situated outside India and having no business establishment in India for consultancy services rendered to an Indian company.

Analysis: Section 64 of the Finance Act, 1994 was treated as limiting the service tax chapter to the whole of India except the State of Jammu and Kashmir. On that basis, a foreign service provider with no business establishment in India was held to fall outside the levy as it then stood. The later amendment from 16.08.2002, under which the recipient of the service was treated as liable, was noted as indicating that prior to that date such a foreign provider was not chargeable to service tax.

Conclusion: Service tax was held not recoverable from the foreign company for the period in question, and the appeal was allowed.

Ratio Decidendi: A foreign service provider having no business establishment in India was not liable to service tax for services rendered before the statutory amendment shifting liability to the recipient.

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