2009 (4) TMI 109 - AT - Service Tax

Tribunal rules service tax liability for non-residents in India starts from 2006

The tribunal ruled in favor of the appellants, determining that the liability to pay service tax for services rendered outside India by a non-resident ... Taxability of services received from non-resident - liability of service recipient - scope of Section 66A (Finance Act, 2006) - invalidity of Rules/notifications purporting to make recipient liable prior to statutory amendment - limits of rule making power under Section 68Taxability of services received from non-resident - liability of service recipient - scope of Section 66A (Finance Act, 2006) - invalidity of Rules/notifications purporting to make recipient liable prior to statutory amendment - Date from which an Indian recipient of services rendered outside India by a non-resident becomes liable to pay service tax - HELD THAT: - The Tribunal held that where services are rendered outside India by a non-resident, there was no legal authority to levy service tax on the Indian recipient prior to insertion of Section 66A by the Finance Act, 2006 w.e.f. 18.04.2006. Notifications or Rules framed earlier (including Rule 2(1)(d)(iv) and the notifications relied upon) could not, consistently with the scheme of Chapter V, convert the recipient into the person chargeable with tax or override the charging provisions; such measures were invalid to the extent they sought to shift the charge from the service provider to the recipient before the statutory amendment. The Tribunal applied the reasoning in the Bombay High Court decision in Indian National Shipowners Association and related authority (noting the principle in Laghu Udyog Bharati) to conclude that only after enactment of Section 66A could a person resident in India be treated as liable for taxable services received from abroad, and therefore earlier levy (claimed from 01.01.2005) could not be sustained.Levy of service tax on the Indian recipient for services rendered outside India is sustainable only from 18.04.2006 (w.e.f. insertion of Section 66A); prior demand (from 01.01.2005) set aside.Final Conclusion: Following the ratio of the Bombay High Court in Indian National Shipowners Association, the Tribunal set aside the impugned orders, allowed the appeals and held that service tax on services rendered outside India to an Indian recipient could be imposed only from 18.04.2006 (date of insertion of Section 66A). Issues: Determination of the date from which the recipient of services rendered outside India by a service provider is liable to pay service tax.Analysis:1. The common issue in both cases before the tribunal was the liability of the appellants to pay service tax concerning services rendered outside India by a service provider. The Revenue claimed the tax should be paid from 01.01.2005, while the assessees argued it should be from 18.04.2006 when Section 66A of the Finance Act, 1994 was enacted. The tribunal considered a recent decision by the Bombay High Court in Indian National Shipowners Association case, which highlighted the lack of legal authority to levy service tax on a person in India receiving services outside India before the enactment of Section 66A.2. The Bombay High Court's decision emphasized that prior to the enactment of Section 66A, there was no legal basis for imposing service tax on individuals in India receiving services from non-residents outside the country. The court analyzed various notifications and provisions to conclude that the recipient of services cannot be held liable for service tax, as the Act primarily focuses on taxing the service provider. The court clarified that even though services provided by non-residents outside India to Indian residents are taxable, the tax liability remains with the service provider.3. The tribunal noted that the services in the present case were rendered outside India, making the judgment of the Rajasthan High Court in Union of India Vs. Aditya Cement, which held the service recipient in India liable from 01.01.2005, inapplicable. Despite the argument to refer the issue to a larger bench, the tribunal relied on the Bombay High Court decision as it settled the matter, and no contradictory decision was presented. Consequently, the tribunal set aside the impugned orders and allowed the appeals, following the precedent established by the Bombay High Court.This detailed analysis of the judgment showcases the interpretation and application of legal provisions and court decisions in determining the liability for service tax concerning services rendered outside India by a non-resident service provider to individuals in India.