Service tax demand on recipient held non-maintainable despite retrospective amendments, with recovery notice set aside.

Service tax demands raised on a recipient for the period 16-11-1997 to 2-6-1998 were found unsustainable where the notices were issued after retrospective amendments but the governing recovery provision, as applied by the courts, did not validly support such action for that period. The text notes that liability had initially been sought under Rule 2(d)(xvii) of the Service Tax Rules, 1994, although the statutory scheme then contemplated collection from the service provider. In light of High Court rulings on non-maintainability, notices issued in 2004 or later could not be sustained, the demand was held not maintainable, and the appeal was allowed.

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Issues: Whether the demand of service tax raised on the service recipient for the period 16-11-1997 to 2-6-1998, issued after the retrospective amendments to the service tax law, was legally sustainable.

Analysis: Liability was initially sought to be fastened on the recipient under Rule 2(d)(xvii) of the Service Tax Rules, 1994, even though the statutory scheme then contemplated collection from the service provider. Although retrospective amendments were later made by the Finance Act, 2000 and the Finance Act, 2003, the question remained whether Section 73 of the Finance Act, 1994, as it stood prior to the amendment of 10-9-2004, could validly support notices for recovery in respect of service recipients who had not filed returns under Sections 70, 71 and 71A. In view of the High Court decisions holding that such demands for the relevant period were not maintainable, and following the judicial hierarchy, the demand notices issued in 2004 or later could not be sustained.

Conclusion: The demand was held to be not maintainable and the assessee succeeded.

Final Conclusion: The impugned order was set aside and the appeal was allowed, with the tax demand on the service recipient failing on the ground of non-maintainability.

Ratio Decidendi: A demand for service tax on a recipient for an earlier period cannot be sustained merely on the basis of retrospective amendments if, on the governing statutory scheme as applied by the courts, the notice is not maintainable under the relevant recovery provision.

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