2008 (6) TMI 6 - AT - Service Tax

Recipient not liable for service tax from non-resident pre-2005. Judgment in favor.

HINDUSTAN ZINC LTD. Versus CCE, JAIPUR

The court held that the recipient of taxable service provided by a non-resident or from outside India became liable to pay service tax only from January ... Consulting engineer service provided by a person who is a non resident or is from outside India, and does not have any office in India - liability of the recipient of service to pay service tax - taxable service provided by a non-resident or from outside India, having been specified as ‘taxable service’ only w.e.f. 1.1.2005, under Not. 36/04, recipient of such service could not be held liable for paying service tax prior to 1.1.05, notwithstanding the amendment in Rule 2 (1)(d) under Not. 12/02 Issues Involved:1. Date of commencement of liability for the recipient of taxable service provided by a non-resident or from outside India to pay service tax.Detailed Analysis:1. Date of Commencement of Liability for Service Tax:The core dispute revolves around determining the exact date when the liability for the recipient of taxable service, provided by a non-resident or from outside India, to pay service tax commenced. The appellant argued that this liability began on January 1, 2005, while the Revenue contended that it started on August 16, 2002.2. Relevant Provisions of the Finance Act and Service Tax Rules:The judgment delves into the provisions of Chapter V of the Finance Act, 1994, particularly focusing on sections 65, 66, 67, 68, 69, 70, 71, and 94. Section 68(2) is pivotal, as it contains a non-obstante clause which specifies that for certain notified taxable services, the recipient of the service, rather than the provider, is liable to pay the tax. The Service Tax Rules, 1994, particularly Rule 2(1)(d), were also amended to include sub-clause (iv) which defines the 'person liable for paying service tax' as the recipient of the service provided by a non-resident or from outside India.3. Notifications and Their Impact:The judgment examines Notification No. 12/2002-ST dated August 1, 2002, which amended Rule 2(1)(d) to include sub-clause (iv), making the recipient of the service liable to pay service tax. However, it was argued that this notification alone was insufficient to impose liability without a corresponding notification specifying the taxable services. Notification No. 36/2004-ST dated December 31, 2004, effective from January 1, 2005, was issued under Section 68(2) and specified the taxable services, including those provided by non-residents or from outside India.4. Interpretation of Section 68(2) and Rule 2(1)(d):The judgment clarifies that Section 68(2) requires two steps: specifying the services by notification and prescribing the person liable to pay the tax by rules. The court emphasized that the definition clause (Rule 2(1)(d)) cannot create liability by itself; it must be read in conjunction with the substantive provision (Section 68(2)) and the corresponding notification (No. 36/2004).5. Precedent Cases and Their Influence:The judgment references previous cases, Aditya Cement vs. CCE and Ispat Industries Ltd. vs. CCE, where it was held that the recipient of the service was not liable to pay service tax for services received prior to January 1, 2005. The Larger Bench was referred to resolve doubts about these decisions.6. Legislative Intent and Amendments:The court discussed the legislative intent behind the amendments and notifications, highlighting that the Central Government's understanding was that both the person liable and the taxable service must be specified. The court also referenced the explanation inserted in Section 65(105) by the Finance Act, 2005, which was later omitted with the insertion of Section 66A in 2006, to clarify the taxable nature of services provided from outside India.7. Conclusion and Final Decision:The court concluded that the recipient of taxable service provided by a non-resident or from outside India became liable to pay service tax only from January 1, 2005, as specified by Notification No. 36/2004. The judgment concurred with the decisions in Aditya Cement and Ispat Industries, ruling in favor of the assessee that the appellant was not liable to pay service tax prior to January 1, 2005.8. Next Steps:The reference was answered in favor of the assessee, and the appeal was to be listed before the Division Bench for final disposal according to law.(Pronounced in open Court on 27th day of June, 2008.)