2008 (9) TMI 36 - HC - Service Tax

High Court rules against retroactive service tax, clarifies liability for services completed pre-implementation date

COMMISSIONER OF C. EX., MEERUT-I Versus INDIAN INSTITUTE OF PETROLEUM

The High Court ruled in favor of the respondent in an appeal challenging the applicability of service tax on services provided before the tax ... Assessee providing Scientific and Technical Consultancy - service of ‘Scientific and Technical Consultancy’ was brought under service tax net w.e.f. 16-7-2001 - letter of intent was issued to IIP assessee much before16-7-01 – even payment was paid by the customer to assessee much before 16-7-01 – mere for the fact that final project report was submitted after 16-7-01, assessee is not liable to pay tax for the services rendered before the introduction of services Issues:- Whether service tax is leviable on services provided before the date service was brought under the net of service taxRs.Analysis:The case involved an appeal under Section 35-G of the Central Excise Act, 1944, challenging an order passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The main question of law was whether service tax is applicable to services for which a draft project report by a scientific and technical expert was prepared before the service was brought under the service tax net. The respondent, an institute providing scientific and technical consultancy, was involved in a dispute regarding service tax on a laboratory study of Vacuum Gas Oil provided to a client. The respondent argued that the work was completed before the service tax implementation date, while the Revenue contended that the final project report was submitted after that date.The High Court examined the timeline of events, noting that the client issued a letter of intent and made an advance payment before the service tax implementation date. Although the final project report was submitted after the implementation date, the Court held that the respondent was not liable to pay service tax for services provided before the tax came into effect. The Court emphasized that service tax is an indirect tax, and forcing the respondent to pay tax on services provided earlier would not allow for passing on the tax burden to the customer as per the contract terms.In conclusion, the Court dismissed the appeal, ruling in favor of the respondent. The judgment clarified that service tax is not applicable to services for which the work was completed before the service tax implementation date, even if the final report was submitted after that date. The decision provided clarity on the tax liability for services provided in the period leading up to the service tax implementation.