Recipient liability for consulting engineer service arose only from 1.1.2005; pre-amendment demand and penalty could not stand.

Consulting engineer service received in India from a non-resident provider with no office in India was taxable only from 1.1.2005 under Notification No. 36/2004. The amendment in Rule 2(1)(d) of the Service Tax Rules did not create recipient liability for the earlier period, so service tax could not be demanded for the pre-1.1.2005 period. The related demand and penalty were therefore unsustainable.

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Issues: Whether the recipient in India of consulting engineer service provided by a non-resident from outside India, who had no office in India, was liable to pay service tax for the period prior to 1.1.2005.

Analysis: The liability was examined in light of the Larger Bench ruling settling that such service became taxable only from 1.1.2005 under Notification No. 36/2004. The amendment in Rule 2(1)(d) of the Service Tax Rules did not fasten liability on the recipient for the earlier period. As the service in question was received from outside India and the provider had no office in India, the demand raised for the prior period could not stand.

Conclusion: The recipient was not liable to pay service tax prior to 1.1.2005, and the demand and penalty were unsustainable.

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