Recipient liability for imported services arose only after section 66A, defeating tax and penalty demands for the earlier period.

Recipient liability for services received from abroad arose only after insertion of section 66A of the Finance Act, 1994; for services received before 18-4-2006, service tax could not be demanded on technical know-how and royalty payments. As the demand related to the pre-18-4-2006 period, the consequential penalties also could not survive, and the tax demand and penalties were set aside.

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Issues: Whether service tax and penalties were leviable on technical know-how and royalty payments made to a foreign company for services received prior to 18-4-2006.

Analysis: The assessee had received technical know-how services from a foreign entity during a period preceding 18-4-2006. The applicable legal position, as recognised in the decision relied upon, was that recipient liability in India for services received from abroad arose only after the introduction of section 66A of the Finance Act, 1994. On that basis, the demand raised for the earlier period and the consequential penalties could not be sustained.

Conclusion: The demand of service tax and the penalties were set aside and the assessee succeeded.

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