Imported service tax liability begins only from 18-4-2006; pre-2006 demand, interest and penalty could not stand.

Section 66A of the Finance Act, 1994 took effect only from 18-4-2006, so service tax could not be validly demanded from a recipient of taxable services imported from abroad for the period 1-1-2005 to 17-4-2006. The demand raised under section 73(1) for the pre-18-4-2006 period therefore lacked legal authority and could not be sustained. Because the tax demand itself failed, the consequential levy of interest and penalty also had no basis. The impugned order was set aside.

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Issues: Whether service tax could be demanded from the appellant for the period prior to 18-4-2006, and whether interest and penalty could survive if no such tax liability existed.

Analysis: Section 66A of the Finance Act, 1994 came into force only from 18-4-2006. For the period from 1-1-2005 to 17-4-2006, there was no legal authority to levy service tax on the recipient of taxable services received from abroad. The liability under section 73(1) of the Finance Act, 1994 could not therefore be sustained for the pre-18-4-2006 period. Once the tax demand itself failed, the consequential levy of interest and penalty also had no basis.

Conclusion: The appellant was not liable to pay service tax, interest, or penalty for the period prior to 18-4-2006, and the impugned order was set aside.

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