Recipient-based service tax on foreign agent commissions was not leviable before section 66A, making the demand and penalties unsustainable.

Service tax on commission paid to foreign agents for services received in India before 18-04-2006 was not legally leviable on the Indian recipient, because recipient-based taxation of imported services became enforceable only on insertion of section 66A of the Finance Act, 1994. The demand raised under Business Auxiliary Services for the period 16-07-2004 to 24-10-2005 was therefore unsustainable, and the associated penalties under sections 76, 77 and 78 could not survive. The impugned order was set aside and the appeal was allowed in full.

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Issues: Whether service tax could be levied on the recipient in India for commission paid to foreign agents for services received during the period prior to insertion of section 66A of the Finance Act, 1994, and whether the consequent demand and penalties were sustainable.

Analysis: The appellant had received services from persons located outside India during 16-07-2004 to 24-10-2005. The demand was confirmed under Business Auxiliary Services and penalties were imposed under sections 76, 77 and 78 of the Finance Act, 1994. The governing legal position was that recipient-based taxation of services received from abroad became enforceable only with effect from 18-04-2006 on insertion of section 66A. The binding authority held that prior to section 66A there was no legal power to levy service tax on a person in India receiving services from outside India, and that position was affirmed by the Supreme Court.

Conclusion: The demand of service tax for the period prior to 18-04-2006 was unsustainable, and the penalties could not survive.

Final Conclusion: The impugned order was set aside and the appeal was allowed in full.

Ratio Decidendi: Service tax cannot be levied on a recipient in India for services received from abroad for the period prior to the insertion of section 66A of the Finance Act, 1994.

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