2025 (3) TMI 1101 - AT - Service Tax

Service tax on reverse charge cannot be levied on overseas agent commissions for pre-18.04.2006 services despite later payment dates

M/s BSL Ltd. Versus COMMISSIONER OF CENTRAL EXCISE, AND CENTRAL GOODS AND SERVICE TAX, UDAIPUR

CESTAT NEW DELHI ruled that service tax on reverse charge basis cannot be levied on commissions paid to overseas agents for services rendered before ... Levy of service tax - commissions paid to overseas agents for services rendered prior to 18.04.2006, despite the payments being made after this date when the service tax on import of services became applicable on a reverse charge basis - HELD THAT:- It is not in dispute that the services rendered by “overseas agents” became taxable with effect from 18.04.2006. A Division Bench of the Tribunal in Reliance Industries Ltd. and Commissioner of Central Excise and Service Tax, LTU, Mumbai [2016 (6) TMI 1108 - CESTAT MUMBAI], in connection with the service tax on reverse charge mechanism under “intellectual property services” held that 'The service itself having been rendered prior to the introduction of the levy, the mere fact that payments for the same were made on a staggered basis over a period of time cannot be a ground for levying service tax merely with reference to the date on which payments were being made.' It is, therefore, clear that what has to be examined is the point of time when the services were actually rendered and not the point of time when the payment was made. It is only upon introduction of the point of Taxation Rule 2011 that the date of receipt would have no relevance. Prior to this, what was relevant was that the date on which services were actually provided. The Commissioner (Appeals) failed to correctly appreciate the certificate of the Chartered Accountant and, therefore, committed an error in holding that no evidence had been placed by the appellant to show that the services were rendered by overseas agents to the appellant prior to 18.04.2006. Conclusion - The appellant would not be required to pay service tax on reverse charge mechanism on the service rendered by overseas agents prior to 18.04.2006. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal question considered in this judgment was whether the appellant was liable to pay service tax on commissions paid to overseas agents for services rendered prior to 18.04.2006, despite the payments being made after this date when the service tax on import of services became applicable on a reverse charge basis.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework revolves around the applicability of service tax on services rendered by overseas agents. The critical date is 18.04.2006, when service tax became payable on the import of services on a reverse charge basis. The Tribunal referenced precedents such as the decision in Reliance Industries Ltd. and Commissioner of Central Excise and Service Tax, LTU, Mumbai, which clarified that the taxable event is the rendering of the service, not the payment date. This was further supported by the Delhi High Court decision in Commissioner of Service Tax vs. Consulting Engineering Services (I) P. Ltd., which emphasized that the taxable event is the provision of the service.Court's Interpretation and ReasoningThe Tribunal interpreted the law to mean that the critical factor for determining service tax liability is the date the service was rendered, not when the payment was made. The Tribunal emphasized that prior to the introduction of the Point of Taxation Rules in 2011, the date of payment was irrelevant for determining service tax liability. The Tribunal found that the Commissioner (Appeals) erred in not recognizing the evidence provided by the appellant, specifically the Chartered Accountant's certificate, which indicated that the services were rendered before 18.04.2006.Key Evidence and FindingsThe appellant provided a Chartered Accountant's certificate detailing the dates of invoices, amounts paid, and the 'let export order' dates, all of which preceded 18.04.2006. This evidence was crucial in establishing that the services were rendered before the service tax became applicable. The Tribunal found no contrary evidence to dispute the Chartered Accountant's certificate and thus accepted it as valid evidence.Application of Law to FactsApplying the legal principles from the relevant precedents, the Tribunal concluded that since the services were rendered before 18.04.2006, the appellant was not liable to pay service tax on the commissions paid to overseas agents, even though the payments were made after this date. The Tribunal held that the Commissioner (Appeals) failed to appreciate the evidence correctly and had erroneously upheld the service tax demand.Treatment of Competing ArgumentsThe Tribunal considered the department's argument that the Chartered Accountant's certificate did not clearly indicate whether the payments were for services rendered prior to 18.04.2006. However, the Tribunal found that the certificate did provide sufficient details to establish the timeline of service provision. The Tribunal dismissed the department's contention due to lack of contrary evidence and relied on the established legal principle that the date of service provision is the taxable event.ConclusionsThe Tribunal concluded that the appellant was not liable to pay service tax on the services rendered by overseas agents prior to 18.04.2006. The Tribunal set aside the order of the Commissioner (Appeals) and allowed the appeal filed by the appellant.SIGNIFICANT HOLDINGSThe Tribunal reaffirmed the principle that the taxable event for service tax purposes is the provision of the service, not the date of payment. This principle was supported by previous decisions, including those of the Delhi High Court and the Mumbai Bench of the Tribunal. The Tribunal held that:'It is, therefore, clear that what has to be examined is the point of time when the services were actually rendered and not the point of time when the payment was made.'The Tribunal's final determination was that the appellant was not liable to pay service tax for the services rendered by overseas agents prior to 18.04.2006, and the appeal was allowed, setting aside the order of the Commissioner (Appeals).