2009 (4) TMI 10 - AT - Service Tax

Tribunal dismisses Revenue's appeal on service tax for services received from abroad

The Tribunal upheld the decision of the Commissioner (Appeals) and dismissed the appeals filed by the Revenue. It was held that liability to pay service ... Service tax on services received from non-residents - Recipient liability for service tax - Prospective effect of amendment to Service Tax Rules - Section 66A and taxation of imported servicesService tax on services received from non-residents - Recipient liability for service tax - Prospective effect of amendment to Service Tax Rules - Whether service tax could be demanded from Indian recipients for Business Auxiliary Services received from persons resident abroad for the period prior to introduction of Rule 2(1)(d)(iv) (16.6.2005) and prior to enactment of Section 66A (18.4.2006). - HELD THAT: - The Tribunal found that the respondent-assessees, Indian companies, received BAS from persons resident abroad in the form of commission agents canvassing orders. The Commissioner (Appeals) vacated demands on the ground that liability to recover service tax from the recipient in India was introduced only by amendment to the Service Tax Rules (Rule 2(1)(d)(iv)) made on 16.6.2005 and that Section 66A (enacted 18.4.2006) further clarified deeming of the Indian recipient as service provider. Relying on the ratio of the Bombay High Court that taxable services received from abroad are chargeable on the Indian recipient only after enactment of Section 66A, and on earlier Tribunal precedent, the Tribunal held that demands for periods prior to the rule amendment/enactment could not be sustained because the liability was not then fastened on the recipient and the amendments operated prospectively. Applying that principle to the facts, the Revenue's appeals to restore demands for the period prior to 16.6.2005 were held to be without merit. [Paras 2, 4]Demands and penalties in respect of BAS received from persons resident abroad for the period prior to 16.6.2005 cannot be sustained; the Commissioner (Appeals) order vacating the demands is affirmed.Final Conclusion: The appeals filed by the Revenue seeking restoration of service-tax demands and penalties on Indian recipients for BAS received from persons resident abroad for the period prior to 16.6.2005 are dismissed and the impugned orders vacating the demands are sustained. Issues:1. Liability to pay service tax for services received from persons resident abroad before the introduction of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994.2. Interpretation of Section 66A regarding taxable services received by an Indian recipient from a person resident abroad.Analysis:1. The appeals were filed by the Revenue challenging the order of the Commissioner (Appeals) vacating demands and penalties raised on the appellants for service tax. The Commissioner found that the appellants were not liable to pay service tax for services received from persons resident abroad before the introduction of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. The Commissioner relied on a Tribunal decision in Cadbury India Ltd. Vs. CCE, where it was held that liability to pay service tax was prospective and could not be imposed for a period before the rule amendment. The Tribunal upheld the Commissioner's decision, stating that the demand for service tax on Indian companies for services received from abroad before the introduction of Section 66A was not sustainable.2. The learned counsel for the respondents argued citing the judgment of the Hon'ble High Court of Bombay in Indian National Shipowners Association Vs. Union of India. The High Court held that taxable services received from abroad by Indian recipients could not be taxed before the enactment of Section 66A. The High Court clarified that Indian recipients were deemed to be service providers only after the enactment of Section 66A. Since the material period of the case was before the introduction of Section 66A and after the enactment of Rule 2(1)(d)(iv), the appeals filed by the Revenue to restore demands on Indian companies for tax on services received from abroad were deemed without merit. The Tribunal sustained the impugned order and rejected the appeals filed by the Revenue.In conclusion, the Tribunal upheld the decision of the Commissioner (Appeals) and dismissed the appeals filed by the Revenue, emphasizing that the liability to pay service tax for services received from abroad was not applicable before the introduction of specific rules and sections, as clarified by legal precedents and judgments.