Service tax recovery against service recipients failed for pre-Section 71A period under the earlier statutory framework.

Service tax on clearing and forwarding agent services was stated to be payable by the recipient under Rule 2(1)(d)(iii) of the Service Tax Rules, 1994, but the return-filing and recovery framework applicable at the relevant time did not yet extend to such recipients. The text notes that Section 71A, which later brought recipients within the return regime, was inserted only in 2003, and Section 73 was amended in 2004 to cover persons required to file returns under Section 71A. Because the notice was issued in 2001 under Section 11 of the Central Excise Act, 1944, without using the later statutory mechanism, the demand was described as unsustainable under the law then in force.

---

---

Issues: Whether a service tax demand raised on the recipient of clearing and forwarding agent services for the period prior to the insertion of Section 71A of the Finance Act, 1994 could be sustained under Section 73 of the Finance Act, 1994 read with Section 11 of the Central Excise Act, 1944.

Analysis: The liability to pay service tax on the services in question was cast on the recipient under Rule 2(1)(d)(iii) of the Service Tax Rules, 1994. At the relevant time, the statutory scheme under Section 70 of the Finance Act, 1994 governed return filing for assessees covered by that provision, while recipients of service were brought within the return framework only by the insertion of Section 71A in 2003. Section 73 was amended later, in 2004, to authorise recovery in respect of persons required to file returns under Section 71A as well. The notice in the present case was issued in 2001 invoking Section 11 of the Central Excise Act, 1944, without reference to the later statutory mechanism applicable to recipients of service. In light of the binding Supreme Court view relied upon in the decision, the demand could not be sustained under the provisions then in force.

Conclusion: The show cause notice and the impugned orders confirming the demand were unsustainable in law, and the appeal was allowed in favour of the assessee.

---