2009 (1) TMI 32 - AT - Service Tax

CESTAT rules no service tax on payments to foreign agents pre-specific dates

The Appellate Tribunal CESTAT NEW DELHI ruled in favor of M/s. VMT Spg. Co. Ltd., M/s. Arisht Spg. Mills, M/s. VSGM, and M/s. Malwa Cotton Spg. Mills ... Taxation of services received from non-resident providers - liability of recipient of offshore services consequent to insertion of Section 66A - taxability of offshore services prior to specification by notification - relevance of Service Tax Circular No.36/4/01 regarding territorial waters - precedential effect of Tribunal Larger Bench and High Court decisions on recipient liabilityTaxation of services received from non-resident providers - liability of recipient of offshore services consequent to insertion of Section 66A - taxability of offshore services prior to specification by notification - Whether service tax was leviable on commission paid to foreign non-resident commission agents (having no office in India) for the period July, 2004 to 15.6.2005, on the recipient in India. - HELD THAT: - The Tribunal considered binding and persuasive authorities including its Larger Bench decision that services provided from outside India by non-residents could not render the Indian recipient liable for service tax prior to the date such services were specified as taxable, and the subsequent decisions holding that liability on recipients arose only after the statutory insertion of Section 66A. The Bench noted the Board Circular that offshore services beyond territorial waters were not liable to service tax until the amendment effected by insertion of Section 66A. Having regard to the Tribunal and High Court rulings that recipient liability for offshore services crystallised only after insertion of Section 66A (and the specification of taxable services), the impugned demands for the period July, 2004 to 15.6.2005 were unsustainable and were set aside. [Paras 3, 7, 8]Impugned orders set aside; appeals allowed and service-tax demands on payments to the foreign non-resident commission agents for the period July, 2004 to 15.6.2005 discharged.Final Conclusion: Following the Tribunal and High Court decisions that recipient liability for offshore services arises only after the insertion of Section 66A and specification of taxable services, the appeals were allowed and the service-tax demands for July, 2004 to 15.6.2005 were set aside. In the Appellate Tribunal CESTAT NEW DELHI case of M/s. VMT Spg. Co. Ltd., M/s. Arisht Spg. Mills, M/s. VSGM, and M/s. Malwa Cotton Spg. Mills versus CCE, Chandigarh, the common issue involved was whether service tax was applicable on payments made to foreign commission agents. The dispute period was from July 2004 to 15 June 2005. The Tribunal considered the case law of Hindustan Zinc Ltd. vs. CCE, Jaipur and M/s. Anant Spg. Mills vs. CCE, Bhopal. The former held that service tax was not liable prior to 1 January 2005 for services provided by non-residents without an office in India. The latter stated that offshore services were not taxable before 18 April 2006. The Tribunal also referenced Circular No. 36/4/01 stating that services beyond territorial waters were not subject to service tax. The decision in the case of Foster Wheeler Energy Ltd. was cited to support the appeals. The Hon'ble Bombay High Court's ruling in Indian National Shipowners Association vs. UOI was also considered, which stated that service tax could only be levied after the insertion of Section 66A of the Finance Act, 1994 on 18 April 2006. The Tribunal's decision aligned with the Bombay High Court's ruling and set aside the impugned orders, allowing all the appeals with consequential relief. The dictation and pronouncement of the decision occurred in an open court.