2016 (4) TMI 1077 - AT - Service Tax

Tribunal rules Indian party not liable for non-resident service provider's tax.

The Tribunal allowed the appellant's appeal regarding authorization for service tax payment, ruling that the Indian party was not liable to pay on behalf ... Demand of Service tax - Consulting Engineering Services - Availed services of foreign consulting firm and paid technical know-how fee to the said service provider, which was a lump sum amount as also royalty paid for the licence to manufacturer the goods, which was based on the price of the final products - Held that:- on examination of the agreement entered into between the appellant and foreign service provider, we fail to note any clause in the said agreement vide which the appellant has been “Authorised” to pay service tax on behalf of M/s.Kyaba. Admittedly, in terms of the provisions, such “authorization” has to be specifically from the foreign service provider and cannot be fastened upon the Indian Service recipient by the Revenue. As such, we fully agree with the ld. Advocate that in absence of such authorization given by M/s. Kyaba, no liability would fall upon him. Accordingly, the part of the impugned order of Commissioner (Appeals), which is challenged before us in the appellant's appeal is set aside. As regards the Revenue’s appeal, it is found that the Commissioner (Appeals) has dropped the demand by relying upon the earlier decision of the Tribunal in the case of Navinon Ltd. Vs. CCE, Mumbai -IV [2004 (8) TMI 2 - CESTAT, MUMBAI]. The only ground for the Revenue to challenge the said part of the impugned order is that the Tribunal’s decision in the case of Navinon Ltd. has not been accepted by them and stands challenged before the Hon’ble High Court of Bombay. On being questioned, both sides fairly agrees that the Bombay High Court’s decision is not available inasmuch as the appeal is still pending. However, there is no stay of operation of the earlier order of the Tribunal. Apart from that, it is also noted that the period involved is September, 2000 to Feb., 2002. In terms of the Hon’ble Bombay High Court’s decision in the case of Indian National Shipowners Association Vs. Union of India [2008 (12) TMI 41 - BOMBAY HIGH COURT], liability to pay service tax by any Indian recipient of the services from a foreign person would arise only w.e.f. 18.04.2006. Therefore, no tax liability can fall upon the appellant for the period prior to 18.04.2006. - Appeal disposed of Issues Involved:1. Taxability of technical know-how fee and royalty payments under Consulting Engineering Services.2. Liability for payment of service tax on behalf of a non-resident service provider.3. Applicability of previous tribunal decisions and pending high court challenges on tax liability.Analysis:Issue 1: Taxability of technical know-how fee and royalty payments under Consulting Engineering ServicesThe case involved M/s. Escorts Ltd availing services of a foreign consulting firm and making lump sum payments for technical know-how and royalty for the license to manufacture goods. The authorities initiated proceedings for service tax under Consulting Engineering Services. The Original Adjudicating Authority confirmed the demand against M/s. Escorts and the foreign service provider jointly. The Commissioner (Appeals) confirmed the demand on the lump sum payment but held that royalty payments were not covered under Consulting Engineers, citing a previous tribunal decision. The Revenue appealed this part of the order.Issue 2: Liability for payment of service tax on behalf of a non-resident service providerThe agreement between the Indian appellant and the foreign service provider was examined to determine if the Indian party was authorized to pay service tax on behalf of the non-resident service provider. The rule specified that a person authorized by the foreign service provider could pay the service tax. The Tribunal found no clause in the agreement authorizing the appellant to pay on behalf of the foreign party. Without such authorization, the liability could not be imposed on the Indian party, leading to the appeal being allowed in favor of the appellant.Issue 3: Applicability of previous tribunal decisions and pending high court challenges on tax liabilityThe Revenue's appeal challenged the Commissioner (Appeals) decision based on a previous tribunal ruling, which the Revenue disputed and had challenged in the High Court. However, as the High Court's decision was pending, and there was no stay on the previous tribunal's ruling, the Tribunal noted that the liability to pay service tax by an Indian recipient for services from a foreign entity arose only from a specific date. Therefore, no tax liability could be imposed on the appellant for the period before that date. The Revenue's appeal was rejected based on this analysis.In conclusion, the Tribunal disposed of both appeals, allowing the appellant's appeal regarding authorization for service tax payment and rejecting the Revenue's appeal due to the timing of tax liability based on the High Court's decision.