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 ... Consulting Engineering Services - authorization by foreign service provider to pay service tax - service tax recovery from Indian recipient for services provided by non-resident - temporal application of recipient's liability to service tax (w.e.f. 18.04.2006) - royalty/licence to manufacture not falling within Consulting Engineering Services (as per Tribunal precedent)Authorization by foreign service provider to pay service tax - service tax recovery from Indian recipient for services provided by non-resident - Liability of the assessee to pay service tax on behalf of the foreign service provider in absence of express authorization by the foreign provider. - HELD THAT: - The proviso to Rule 6 of the Service Tax Rules, 1994 contemplates recovery from a person authorised by the non-resident foreign service provider to pay service tax on the provider's behalf. The authorities below treated the Indian recipient (the assessee) as liable to pay because it received the services, but no clause of the agreement was shown to constitute an express authorisation by the foreign provider. Examination of the agreement failed to disclose any specific authorisation from M/s. Kyaba enabling the assessee to discharge Kyaba's tax liability. Authorization must be specifically conferred by the foreign service provider and cannot be imputed by the Department to the Indian recipient merely because it received the services. For these reasons the tribunal set aside the portion of the order fixing liability on the assessee and allowed the assessee's appeal with consequential relief. [Paras 7, 8]Assessee not liable to pay service tax on behalf of the foreign provider in absence of express authorization; assessee's appeal allowed.Consulting Engineering Services - royalty/licence to manufacture not falling within Consulting Engineering Services (as per Tribunal precedent) - temporal application of recipient's liability to service tax (w.e.f. 18.04.2006) - Sustainability of Revenue's demand for service tax on payments characterized as royalty/licence or consulting-engineering services for the period in question. - HELD THAT: - The Commissioner (Appeals) discharged part of the demand by relying on the Tribunal's earlier decision in Navinon Ltd. which held that payments characterized as royalty/licence to manufacture were not covered by Consulting Engineering Services. The Revenue challenged that conclusion, noting the Navinon decision was under challenge before the Bombay High Court, but no stay of the Tribunal's order was shown. Independently, the tribunal observed that, on the temporal point, the Bombay High Court in Indian National Shipowners Association has held that liability on an Indian recipient to pay service tax for services from a foreign provider arises only with effect from 18.04.2006. The period under adjudication is September, 2000 to February, 2002; accordingly, irrespective of the merits on whether the services were taxable during the relevant period, no tax liability could be imposed on the assessee for that period. On this basis the Revenue's appeal was found to have no merit and was rejected. [Paras 5, 9]Revenue's appeal rejected; no service tax liability can be imposed on the assessee for September, 2000 to Feb., 2002 (liability on recipient arises only w.e.f. 18.04.2006).Final Conclusion: The assessee's appeal is allowed insofar as recovery was sought from it in absence of express authorization by the foreign service provider; the Revenue's appeal is rejected because no liability can be imposed on the recipient for the period September, 2000 to Feb., 2002, the recipient's liability arising only from 18.04.2006. 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.