Tribunal rules no service tax before 18.4.2006; Bombay HC decision supports. Appellant wins appeal.

The Tribunal held that service tax could not be demanded from the appellant for services received from an offshore provider before 18.4.2006, as there were no specific provisions in the Finance Act, 1994 allowing for such recovery. The decision of the Hon'ble Bombay High Court supported this interpretation, leading to the setting aside of the service tax demand and penalties imposed on the appellant. The appeal was allowed in favor of the appellant, overturning the previous decisions confirming the tax liability.

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Issues:
1. Whether service tax can be demanded from the appellant as a service recipient in respect of taxable services received from an offshore service provider prior to 18.4.2006.

Analysis:

1. The appellant was alleged to have received taxable services of Consulting Engineers from an offshore service provider in Japan during the period from 1.6.2003 to 31.3.2005. The service tax amounting to Rs. 1,52,949/- was sought to be recovered under Rule 2(1)(d)(iv) of Service Tax Rules, 1944 along with interest under Section 75 of the Finance Act, 1994. The jurisdictional Asstt. Commissioner confirmed the service tax demand along with interest and imposed penalties under Sections 76, 77, and 78 of the Act.

2. The appellant appealed to the Commissioner (Appeals) against the order, which was upheld. Subsequently, the appellant filed an appeal challenging the decision.

3. The appellant's counsel argued that since Section 66A of the Finance Act, 1994 was inserted w.e.f. 18.04.2006, allowing recovery of service tax from the recipient in India in case of taxable services provided by an offshore service provider, no service tax could be recovered from the appellant for the period prior to 18.4.2006. Reference was made to a judgment of the Hon'ble Bombay High Court in the case of Indian National Ship Owners Association Ltd., supporting this argument.

4. The Departmental Representative defended the impugned order, stating that even before 18.4.2006, Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 allowed for the recovery of service tax in the case of importing taxable services into India from the service recipient.

5. The Tribunal considered the submissions and records. It noted the decision of the Hon'ble Bombay High Court in the case of Indian National Ship Owners Association Ltd., which held that in the absence of specific provisions in the Finance Act, 1994 before 18.4.2006 for recovery of service tax from the service recipient in India for services provided by a foreign service provider, no service tax could be recovered from the recipient. Consequently, the impugned order was deemed unsustainable, set aside, and the appeal was allowed.

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