Appellants liable for service tax on foreign services; penalties waived. Failure to prove payment via Indian affiliates dismissed appeal.

The Tribunal upheld the liability of the appellants to pay service tax on a reverse charge basis under Section 66 A for services received from foreign companies. Penalties under Sections 77 and 78 of the Finance Act, 1994 were waived under Section 80 due to the circumstances of the case. The Tribunal found that the foreign service providers having a permanent establishment in India did not exempt the appellants from the tax liability. The appellants' failure to provide evidence of payment through Indian affiliates led to the dismissal of the appeal.

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Issues:
1. Liability to pay service tax on reverse charge basis under Section 66 A for services availed from foreign companies.
2. Applicability of Section 66 A in the case where the foreign service provider has a permanent establishment in India.
3. Validity of demand for extended period and imposition of penalties under Sections 77 and 78 of the Finance Act, 1994.

Analysis:

Issue 1:
The dispute in the appeal revolved around the liability of the appellants to pay service tax on a reverse charge basis for services received from foreign companies under the category of "Banking and Other Finance Services." The Revenue demanded service tax from the appellants under Section 66A, amounting to Rs. 4,46,22,000, along with penalties under Sections 77 and 78 of the Finance Act, 1994.

Issue 2:
The appellants argued that the foreign service providers had a permanent establishment in India, which, according to them, exempted them from the liability under Section 66 A. However, the Tribunal, after examining the provisions of Section 66 A, concluded that if a service provider has establishments in both India and a foreign country, they are treated as separate entities. In this case, the services were provided by the foreign entity, not through its Indian establishment, making the appellants liable to pay service tax on a reverse charge basis.

Issue 3:
Regarding the extended period of demand and imposition of penalties, the appellants contended that they had paid consideration inclusive of service tax to the Indian affiliates of the foreign service providers and that there was a bonafide reason for non-payment of service tax. The Tribunal noted that the appellants failed to provide documentary evidence supporting their claim of payment through Indian affiliates. While upholding the findings of the Original Authority on the limitation issue, the Tribunal invoked Section 80 for waiving penalties due to the circumstances of the case.

In conclusion, the Tribunal dismissed the appeal, upholding the liability of the appellants to pay service tax on a reverse charge basis under Section 66 A for services received from foreign companies. The penalties were waived under Section 80, considering the appellants' claim of payment through Indian affiliates.

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