2008 (11) TMI 84 - AT - Service Tax

Tribunal rules no service tax on overseas agent commission pre-2006 amendment

The Tribunal ruled in favor of the assessees, holding that service tax was not payable on the commission paid to overseas agents without a presence in ... Liability to pay service tax on services provided from outside India - offshore services and territorial waters - insertion of Section 66A of the Finance Act, 1994 (effect from 18.4.2006) as determinative of taxability - recipient-liability for services provided by a non-resident not having an office in IndiaLiability to pay service tax on services provided from outside India - offshore services and territorial waters - insertion of Section 66A of the Finance Act, 1994 (effect from 18.4.2006) as determinative of taxability - Whether service tax was payable by the assessees on commission paid to overseas agents/foreign companies not having any office in India for the periods in dispute - HELD THAT: - The Tribunal considered earlier larger-bench and coordinate decisions and the effect of statutory amendment introducing Section 66A w.e.f. 18.4.2006. It noted that prior to that amendment CBEC Circular No. 36/4/2001 (8.10.2001) treated services provided beyond territorial waters as not attracting service tax, and that Foster Wheeler accepted that offshore services rendered from outside India became taxable only after insertion of Section 66A w.e.f. 18.4.2006. While the Larger Bench in Hindustan Zinc and the decision in Unitech were considered, the Tribunal followed Foster Wheeler and held that the recipient-liability for services provided from outside India by a foreign entity not having an office in India became effective from 18.4.2006. Applying that principle to the periods expressly in dispute, the Tribunal concluded that no service tax, interest or penalties could be sustained for the periods prior to 18.4.2006.Demand of service tax, interest and penalties set aside for the periods in dispute; assessee appeals allowed and Revenue appeal rejected.Final Conclusion: The Tribunal held that services provided from outside India by foreign entities not having an office in India became taxable with effect from 18.4.2006; accordingly, demands for service tax, interest and penalties for the stated periods (8.7.04 to 31.3.05 and 9.7.2004 to 30.9.2005) were set aside and the assessees' appeals allowed while the Revenue's appeal was rejected. Issues involved:Whether service tax is payable on the amount paid as commission to overseas agents without an office in India.Analysis:The appeals involved a common issue of determining the liability of service tax on the commission paid to overseas agents without a presence in India. The period of dispute ranged from 8.7.04 to 31.3.05 for one appellant and from 9.7.2004 to 30.9.2005 for another. The adjudicating authority had confirmed the tax demand and imposed penalties, leading to appeals from both the Revenue and the assessees against the Commissioner (Appeals) order. The Tribunal referred to the decision in Hindustan Zinc Ltd. vs. CCE, Jaipur, which held that taxable services provided by non-recipients from outside India without an office in India were considered taxable services effective from 1.1.2005. Additionally, the Tribunal cited the case of Foster Wheeler Energy Ltd. vs. CCE & Cus. Vadodara-II, which established that offshore services became liable to pay service tax from 18.4.2006. As a result, the liability for tax payment by the assessee for services rendered by foreign companies without an office in India was deemed effective from 18.4.2006.The Revenue reiterated the Commissioner (Appeals) findings and referred to the case of Unitech Ltd. vs. CST, Delhi, which held that the recipient of services provided by a foreign company would be liable to pay tax from 1.1.2005. The advocates for the assessees relied on the decision in Foster Wheeler Energy Ltd., emphasizing that services rendered from outside India were distinct and not liable for tax before 18.4.2006. The Tribunal considered the amendment with the insertion of Section 66A in the Service Tax Provisions by the Finance Act, 2006, effective from 18.4.2006. The decision in Foster Wheeler Energy Ltd. highlighted the distinction between onshore and offshore services, indicating that offshore services were not taxable before the amendment. The Tribunal also noted Service Tax Circular No. 36/4/01, which exempted services provided beyond territorial waters from service tax until the amendment on 18.4.2006.Based on the discussions and the precedent set by Foster Wheeler Energy Ltd., the Tribunal set aside the tax demand, interest, and penalties, allowing the appeals filed by the assessees and rejecting the appeal filed by the Revenue. The decision aligned with the interpretation that offshore services were not subject to service tax before the amendment on 18.4.2006.