2008 (12) TMI 61 - AT - Service Tax

CESTAT rules in favor of assessee, rejecting tax liability on sale commission paid to foreign brand company

The Appellate Tribunal CESTAT, New Delhi, rejected the Revenue's appeal and allowed the assessee's appeal regarding the liability of tax on sale ... Service tax liability for services provided by non-resident - effect of insertion of Section 66A on taxability of offshore services - service recipient liability for tax from 1.1.2005 - relevance of Service Tax Circular No.36/4/01Service recipient liability for tax from 1.1.2005 - service tax liability for services provided by non-resident - Validity of Revenue's appeal challenging the Commissioner (Appeals)'s finding regarding tax liability prior to 1.1.2005. - HELD THAT: - The Tribunal rejected the Revenue's appeal and found no merit in disturbing the Commissioner (Appeals)'s conclusion that liability to pay service tax did not arise prior to 1.1.2005. The decision follows the Larger Bench authority which held that the service recipient became liable to pay service tax only with effect from 1.1.2005 in view of the amendment of the Service Tax Rules; consequently, demands prior to that date cannot be sustained.Revenue's appeal dismissed; Commissioner (Appeals)'s finding on non-liability prior to 1.1.2005 upheld.Effect of insertion of Section 66A on taxability of offshore services - relevance of Service Tax Circular No.36/4/01 - Sustainability of the demand of service tax on payments made for services rendered from outside India for the period 1.1.2005 to 31.12.2005. - HELD THAT: - Relying on the Tribunal decision in Foster Wheeler Energy Ltd., the Court noted that offshore services were not taxable for periods prior to the insertion of Section 66A (by Finance Act, 2006, w.e.f. 18-4-2006). Service Tax Circular No.36/4/01 (8-10-2001) indicated that services provided beyond territorial waters did not attract service tax until the statutory amendment. Applying these authorities, the Tribunal held that the demand for the period 1.1.2005 to 31.12.2005 was not sustainable and accordingly set aside the demand for that period.Assessee's appeal allowed; demand for 1.1.2005 to 31.12.2005 set aside.Final Conclusion: The Revenue's challenge to non-liability before 1.1.2005 is dismissed and the demand for service tax for 1.1.2005 to 31.12.2005 is set aside, the Tribunal applying precedents that offshore services were not taxable prior to the statutory amendment and relevant Board circular. Issues:Liability of payment of tax on the assessee for sale commission paid to foreign brand company in respect of exported goods.Analysis:The Appellate Tribunal CESTAT, New Delhi, comprising Mr. M. Veeraiyan and Mr. P.K. Das, considered the issue of tax liability on the assessee for paying sale commission to a foreign brand company for exported goods. The Commissioner (Appeals) had held the assessee liable to pay service tax from 1.1.2005 onwards and confirmed the tax demand for that period. The Revenue appealed to set aside the demand before 1.1.2005, while the assessee appealed against the demand for the period from 1.1.2005 to 31.12.2005. The Tribunal referred to the decision in the case of Foster Wheeler Energy Ltd. vs. C.C. Ex. & Cus., Vadodara II, which clarified the tax liability on offshore services. The Tribunal also cited the Service Tax Circular No. 36/4/01, stating that services provided beyond territorial waters were not subject to service tax until the amendment with the insertion of Section 66A in the Finance Act, 2006.The Tribunal further highlighted the decision of the Larger Bench in the case of Hindustan Zinc Ltd., which established that the service recipient of a Consultant Engineer from outside India became liable to pay service tax not before 1.1.2005 due to an amendment in the Service Tax Rules. Building on these precedents, the Tribunal concluded that the demand of tax from 1.1.2005 to 31.12.2005 was not sustainable. Consequently, the Commissioner's order confirming the tax demand for that period was set aside, and the appeal by the assessee was allowed with consequential relief.In summary, the Tribunal rejected the Revenue's appeal, citing the decision in the Hindustan Zinc Ltd. case, and allowed the assessee's appeal based on the principles established in the Foster Wheeler Energy Ltd. case, ultimately providing relief to the assessee regarding the tax liability for the specified period.