Service tax on foreign commission agents was not leviable before Section 66A, and the demand failed.

Service tax was considered on commission paid to a foreign commission agent located outside India for a period before Section 66A of the Finance Act, 1994 came into force. The Tribunal followed its earlier view that taxable services provided from outside India were not liable to service tax in the hands of the recipient for the relevant pre-amendment period, and treated the Board circular on services rendered beyond territorial waters as continuing until the statutory change. On that basis, the demand against the Indian recipient was held unsustainable for the period in issue.

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Issues: Whether service tax could be demanded from the Indian recipient on commission paid to a foreign commission agent located outside India, for the period prior to insertion of Section 66A of the Finance Act, 1994.

Analysis: The dispute concerned commission paid to a non-resident service provider having no office in India, for the period July 2004 to 15.06.2005. The Tribunal followed its earlier view that taxable services provided from outside India were not liable to service tax in the hands of the recipient before 01.01.2005, and also relied on the later position recognised after insertion of Section 66A of the Finance Act, 1994 with effect from 18.04.2006. The Tribunal further noted that the Board circular stating that services provided beyond territorial waters would not attract service tax remained relevant until the statutory amendment introducing Section 66A.

Conclusion: Service tax was not leviable on the commission paid to the foreign agent for the relevant period, and the demands were unsustainable.

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