Offshore service tax liability before section 66A was not sustainable for foreign services rendered outside territorial waters.

Commission paid to a foreign-based company for services rendered outside the territorial waters was treated as outside the service tax net for the period before section 66A was inserted. The Tribunal relied on its earlier precedent and the departmental circular that services provided beyond territorial waters did not attract service tax until the statutory amendment took effect. On that basis, the demand for the earlier period and the connected penalty were not sustainable.

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Issues: Whether service tax was payable on commission paid to a foreign-based company for services rendered during the relevant period prior to the insertion of section 66A, and whether the demand and penalty could be sustained.

Analysis: The Tribunal followed its earlier decision holding that offshore services rendered outside the territorial waters were not liable to service tax for the period prior to the insertion of section 66A. It also relied on the departmental circular stating that services provided beyond the territorial waters would not attract service tax until the statutory amendment took effect. Applying that precedent, the demand raised for the earlier period was not sustainable.

Conclusion: The demand of service tax and the connected penalty were not sustainable for the relevant period, and the Revenue's appeal failed.

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