2008 (10) TMI 154 - AT - Service Tax

Appellants not liable for service tax under consulting engineer's service. Precedent overturns lower authorities' decision.

The Tribunal ruled in favor of the appellants, holding that they were not liable to pay service tax under the head 'consulting engineer's service' for the ... Consulting engineer's service - taxability of services provided from outside India by non-residents - absence of office in India of foreign service provider - charging provision for levy on recipients of services - non-vivisectability of works contracts - precedential effect of Larger Bench decisionConsulting engineer's service - taxability of services provided from outside India by non-residents - Whether the fee paid by the appellant to two foreign contractors for revamp services rendered from abroad during September, 2002 to February, 2003 was liable to service tax as consulting engineer's service in the hands of the appellant. - HELD THAT: - The Tribunal examined the contracts which showed that the foreign contractors carried out basic engineering outside India and delivered documents to the owner; there was no case made out that the contractors had any office in India during the period in question. In the absence of an office in India and having regard to the law as laid down by the Larger Bench in M/s. Hindustan Zinc Ltd. v. CCE, Jaipur, a taxable service provided by a non-resident from outside India who did not have an office in India was not assessable to service tax in the hands of the recipient for periods prior to 1-1-2005. Applying that precedent, the Tribunal held that the fee paid for the revamp services rendered from abroad could not be subjected to service tax as consulting engineer's service for the period September, 2002 to February, 2003.The fee paid to the foreign contractors for the revamp services rendered from outside India is not liable to service tax as consulting engineer's service for the period September, 2002 to February, 2003; the impugned orders demanding service tax are set aside.Charging provision for levy on recipients of services - absence of office in India of foreign service provider - precedential effect of Larger Bench decision - Whether service tax could be levied on the appellant as the recipient of a taxable service from abroad in the absence of a charging provision operative prior to 18-4-2006 and in light of law prior to 1-1-2005. - HELD THAT: - The Tribunal observed that the charging provision empowering levy and collection of service tax from recipients of services came into force only with effect from 18-4-2006, and noted the Larger Bench finding that services received from non-residents without an office in India were not assessable in the hands of the recipient prior to 1-1-2005. The Revenue did not establish that the foreign contractors maintained offices in India during the material period. The Tribunal, therefore, followed the Larger Bench and concluded that there was no legal basis to assess the appellant as recipient of taxable service for the period in question.There was no power to levy service tax on the appellant as recipient of the foreign-provided services for the period under dispute; the demand is unsustainable.Final Conclusion: Following the Larger Bench precedent and on the factual finding that the foreign contractors had no office in India, the Tribunal allowed the appeal, set aside the impugned demand for service tax, and held that the fees paid for the revamp services during September, 2002 to February, 2003 were not assessable to service tax in the hands of the appellant. Issues:Whether the appellants are liable to pay service tax under the head 'consulting engineer's service' for the period September 2002 to February 2003 to two foreign companies engaged as contractors for revamp of manufacturing plants in India.Analysis:In this appeal, the main contention raised by the appellants is that the contracts with foreign companies were works contracts and not vivisectable into distinct taxable services like consulting engineer's service. They argued that the foreign companies did not meet the criteria to be classified as 'consulting engineers' as per the definition under Section 65 of the Finance Act, 1994. Additionally, they pointed out that works contracts only became a taxable service from June 1, 2007, so the fee paid under the agreements should not be taxed even before this date. They also highlighted that the charging Section 66A of the Act, enabling the levy and collection of Service Tax from service recipients, was effective only from April 18, 2006, and thus they were not liable to pay service tax as recipients of any taxable service from abroad during the disputed period. Furthermore, they relied on a previous decision of the Larger Bench of the Tribunal in the case of M/s. Hindustan Zinc Ltd., which supported their position. The appellants' arguments were presented before the Tribunal, along with the findings reiterated by the lower authorities.Upon reviewing the submissions, the Tribunal noted that the Revenue failed to establish that the contractors had any office in India during the relevant period or that there was a charging section for the levy and collection of service tax from service recipients before April 18, 2006. The Tribunal observed that the case of M/s. Hindustan Zinc Ltd., as decided by the Larger Bench, set a precedent that a taxable service provided by a non-resident from outside India without an office in India was not subject to service tax in the hands of the recipient in India before January 1, 2005. The Tribunal also highlighted that the question addressed by the Larger Bench in the Hindustan Zinc case was whether a service labeled as 'consulting engineer's service' received from outside India before January 1, 2005, was liable to service tax in the hands of the recipient, which was answered in the negative.Based on the precedent set by the decision of the Larger Bench in the Hindustan Zinc case, the Tribunal concluded that the view taken by the lower authorities was legally unsustainable. Consequently, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellants. The judgment was dictated and pronounced in the Court by the Tribunal members.