Service tax on foreign service payments requires explicit pre-amendment authorisation; later rule changes do not apply retrospectively.

Service tax could not be fastened on the Indian service recipient for payments made to foreign service providers for the period before 16.08.2002 because, under the pre-amendment Service Tax Rules, liability on behalf of a non-resident provider depended on explicit authorisation. The contractual terms contained no such express authorisation, and a general agreement could not be treated as a blanket consent to future tax liability. The later amendment widening recipient liability did not apply retrospectively. The demand for the pre-amendment period was therefore held unsustainable, and the order was set aside to that extent.

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Issues: Whether service tax could be fastened on the service recipient for payments made to foreign service providers for the period prior to the amendment of the Service Tax Rules, 1994 on 16.08.2002.

Analysis: The pre-amendment position under the Service Tax Rules, 1994 made payment by a person in India on behalf of a non-resident service provider contingent on authorization by that service provider. The contractual terms relied upon did not contain any explicit authorization to pay service tax on behalf of the foreign collaborator, and the agreement could not be treated as a blanket authorization covering future tax changes. The amendment introducing a wider liability on the recipient was therefore not available to sustain the demand for the earlier period.

Conclusion: The demand of service tax for the period prior to 16.08.2002 was unsustainable and the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was set aside to the extent it upheld service tax liability for the pre-amendment period, and the appeal succeeded in part.

Ratio Decidendi: A service recipient cannot be made liable for service tax on behalf of a non-resident service provider for the pre-amendment period unless there is explicit authorization under the applicable rule, and a later amendment does not operate retrospectively in the absence of such authorization.

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