Service tax on imported consulting engineer services arose only from 1.1.2005, defeating prior-period demands and penalties.

Consulting engineer services received from a non-resident or from outside India, where the provider had no office in India, were treated as taxable only from 1.1.2005 under the relevant notification. On that basis, service tax could not be demanded from the recipient for the prior period, and the same reasoning also made the impugned demand against the non-resident provider unsustainable on the facts stated. The demand for service tax and the related penalties for the period before 1.1.2005 were therefore held unsustainable in favour of the assessee.

---

---

Issues: Whether service tax could be demanded prior to 1.1.2005 on the recipient of consulting engineer services received from a non-resident or from outside India, and whether the corresponding demand and penalties on the non-resident service provider and recipient were sustainable.

Analysis: The Tribunal followed the Larger Bench view that a consulting engineer service provided by a non-resident or from outside India, having no office in India, became a taxable service only with effect from 1.1.2005 under the relevant notification. On that footing, the recipient could not be fastened with service tax liability for the prior period. The same reasoning also meant that the non-resident provider, in the facts of the case, could not be subjected to the impugned demand.

Conclusion: The demand of service tax and penalties for the period prior to 1.1.2005 were held unsustainable, in favour of the assessee.

---