Service tax on foreign services lacked statutory authority before Section 66A, making recipient liability unenforceable for that period.

Service tax could not be demanded from an Indian recipient for services received from foreign service providers for the period before 18-4-2006. The governing principle applied was that, prior to insertion of Section 66A, there was no statutory authority to fasten service tax liability on the recipient of services from outside India, and Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 could not validly shift the charge from the foreign service provider to the recipient when the parent Act did not provide for it. The demand for the pre-18-4-2006 period was therefore unsustainable and unenforceable against the assessee.

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Issues: Whether service tax could be demanded from the recipient in India for services received from foreign service providers for the period prior to 18-4-2006 under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994.

Analysis: The demand rested on the premise that the recipient of services from abroad was liable to pay service tax under Rule 2(1)(d)(iv). The governing law, as applied by the Court, was that prior to insertion of Section 66A, there was no statutory authority to fasten service tax liability on the recipient of services received from outside India. A rule framed under the Act could not validly shift the charge of tax from the service provider to the recipient when the parent enactment did not so provide. Since the entire demand related to a period before 18-4-2006, the levy was contrary to the settled legal position.

Conclusion: The demand was not sustainable and the liability of the recipient for the pre-18-4-2006 period was held to be unenforceable in favour of the assessee.

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