Imported service tax liability fails where reverse charge has no statutory backing before Section 66A.

Service tax could not be levied on services received from a foreign parent company for the period before insertion of Section 66A of the Finance Act, 1994, because Rule 2(1)(d)(iv) of the Service Tax Rules, 2004 could not create a tax charge without supporting parent statutory authority. The explanation below Section 65(105) also did not authorise taxation of imported services. The position had already been accepted by the Supreme Court and followed in the appellant's own case, so the demand for the pre-18/04/2006 period was held unsustainable and set aside.

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Issues: Whether service tax could be levied on services received from a foreign parent company for the period prior to insertion of Section 66A of the Finance Act, 1994, on the basis of Rule 2(1)(d)(iv) of the Service Tax Rules, 2004.

Analysis: The demand was confirmed on the footing that the appellant, as recipient of services from abroad, was liable under the reverse charge mechanism for the period from 01/01/2005 to 15/06/2005. The governing legal position was already settled that Rule 2(1)(d)(iv) could not create a tax charge unsupported by the parent statute, and that before insertion of Section 66A there was no authority to levy service tax on import of service. The explanation below Section 65(105) also did not authorise such levy. That view had been accepted by the Supreme Court, and the Tribunal had earlier followed the same principle in the appellant's own case.

Conclusion: The service tax demand for the period prior to 18/04/2006 was unsustainable and was set aside.

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