Service tax on commission to foreign agents under reverse charge mechanism applies from Section 66A insertion date 18.04.2006, not 01.01.2005

CESTAT Bangalore held that service tax on commission paid to foreign agents under reverse charge mechanism applies only from 18.04.2006 when Section 66A was inserted into Finance Act, 1994, not from 01.01.2005 as demanded. The appellant had discharged service tax liability for the applicable period and provided proper intimation to the Department. The demand for the earlier period was unsustainable, and penalties under Sections 77-78 were not tenable. Appeal allowed.

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Issues:
1. Whether service tax is leviable under reverse charge for services provided by an agent residing outside India from 01.01.2005 or from 18.04.2006.

Analysis:
The case involved the appellant, engaged in the manufacture and export of fabrics, who paid commission to foreign agents for various services rendered outside India. The dispute arose when the appellants did not pay service tax on the commission paid to these agents. The authorities issued a show cause notice alleging non-payment of service tax on the commission paid to foreign agents, leading to the demand confirmation and imposition of penalties. The appellant contended that the liability to pay service tax was not clear before the insertion of Section 66A of the Finance Act, 1994, on 18.04.2006. They voluntarily paid service tax for the period post-18.04.2006 and requested the matter to be considered closed.

The appellant argued that service tax under reverse charge for services provided by foreign agents is applicable only from 18.04.2006, citing relevant case laws to support their claim. The Tribunal analyzed the legal provisions and case laws cited, concluding that service tax on commission paid to foreign agents is payable under reverse charge only from 18.04.2006 and not from 01.01.2005. The Tribunal found that the appellant had already discharged the service tax for the period from 18.04.2006 to 27.12.2008 and informed the authorities accordingly. Consequently, the invocation of penal provisions under Section 77 & 78 of the Finance Act, 1994 was deemed not tenable.

In light of the legal analysis and precedents cited, the Tribunal allowed the appeal filed by the appellant. The demand for the period 01.01.2005 to 18.04.2006 was deemed unsustainable, and the penalties imposed under Section 77 & 78 were considered not tenable. Therefore, the appeal was allowed with any consequential relief as per law.

This detailed analysis and interpretation of the legal provisions and case laws led to the Tribunal's decision to allow the appellant's appeal, providing clarity on the levy of service tax under reverse charge for services provided by foreign agents from the relevant date of 18.04.2006 onwards.

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