Tribunal upholds assessee's exemption under Notification despite Revenue's challenge

The Tribunal held that the respondent-assessee, engaged in manufacturing and services, was entitled to exemption under Notification No. 17/2004-ST despite the Revenue's argument against it. Regarding Section 66A of the Finance Act, 1994, the Tribunal ruled in favor of the respondent-assessee, emphasizing the applicability of the exemption to the recipient of services. The appeal by the Revenue was dismissed, and the cross objection by the respondent-assessee was disposed of.

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Issues:
The issues involved in this case are the applicability of exemption under Notification No. 17/2004-ST dated 10.09.2004 to the respondent-assessee and the interpretation of Section 66A of the Finance Act, 1994 regarding the liability of service tax payment by the recipient of service.

Applicability of Exemption:
The respondent-assessee, engaged in manufacturing and providing services, was found to be wrongly claiming exemption from service tax under Notification No. 17/2004-ST. The Revenue argued that since the exemption is related to taxable services provided by the holder of intellectual property right, it should not apply to the respondent-assessee. However, the respondent-assessee contended that as per Section 66A, they are required to pay service tax under reverse charge mechanism, making them the service provider. The Tribunal held that the benefit of the exemption should be available to the respondent-assessee, citing previous decisions and legal provisions.

Interpretation of Section 66A:
Section 66A of the Finance Act, 1994 creates a deeming fiction for payment of service tax by the recipient of service. The Tribunal observed that since the appellant is liable to pay service tax as a recipient of the taxable service, the provisions of Section 66 should also be applicable. The Tribunal referred to previous rulings, including one by the Co-ordinate Bench of the Tribunal, which held that the exemption should be available to the recipient of service. The Tribunal also noted a decision by the Hon'ble High Court of Bombay regarding the legal authority to levy service tax on recipients of taxable services. Based on these interpretations, the Tribunal dismissed the appeal filed by the Revenue and disposed of the cross objection filed by the respondent-assessee.

Separate Judgement:
The order was pronounced by the Hon'ble Mr. M. M. Parthiban, Member (Technical) on 03.07.2023.

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