TaxTMI 
TaxTMI 
2004 (10) TMI 11
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....ring services rendered by KHI together with interest as per Sec. 75 of the Finance Act, 1994 and imposition of penalty of Rs. 3,84,500/-. 2. The brief facts of the case are that BAL manufacture, inter alia, motor vehicles falling under Chapter 87 of the Schedule to the Central Excise Tariff Act, 1985. One variety of motor vehicle is two wheeled motor cycles sold under the brand name "Kawasaki Bajaj-KB 100" for the manufacture of which the appellants entered into periodic agreements with KHI, Japan. Agreements are dated 6-8-94, 9-3-98, 2-2-02 and 7-11-02. In terms of the agreements, KHI provided technical know-how, technical assistance and patents for the above mentioned variety of motor cycle. Show cause notice dated 29-7-2002 was issued....
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.... any other person authorized by him; that the service receiver (BAL) is a client being charged for the service and cannot be the agent of the service provider for the purpose of payment of Service Tax in terms of Rule 6. They also raised a plea that the proviso to Rule 6 is prospective in nature and cannot be made applicable retrospectively and therefore, the amount of Rs. 8,96,728/- being the service tax for the period 7-7-97 to 27-2-99 could not be demanded. Their further contention was that the royalty payments under the agreement were in the nature of licence fees for the use of the "Kawasaki" brand name and cannot be treated as value of "services" rendered by consulting engineers. They also submitted that the expression "consulting eng....
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.... under Sec. 70 and imposed penalty of Rs. 3,83,000/- under Sec. 76 for failure to pay the Service Tax. The Commissioner (Appeals) upheld the Adjudication Order in its entirety; hence this appeal. 3.We have heard Shri A. Hidayatullah, Sr. advocate appearing alongwith Shri A. Sheerazi, advocate for the appellants and Shri S.V. Parelkar, JDR for the Department. The terms of payment by BAL to KHI are set out in the agreements. Article 9 of the first agreement provides that in consideration of the supply of know-how including technical information for the product from KHI, BAL shall pay the following amount, subject to deduction of tax in India........1. Lumpsum payment of .......... for use of the know how; 2. Royalty at the rate of..........
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.... to KHI subject to deduction of applicable taxes in India; Article 11.06 talks about remittance after deduction to be sent to Bank Accountant in Japan and article 11.07 provides that all tax concerning payments to KHI shall be paid by BAL directly to the Government of India on behalf of KHI. 4. The submission of BAL is that these articles provide for deduction of Income Tax at source and remitted the balance to KHI, in view of the fact that the requirement to issue a certificate for deduction of tax at source is applicable under the Income Tax Act 1961 and there is no provision for payment of Service Tax, as no such procedure for issuing certificate existed under the Finance Act, 1994 or the Service Tax Rules. The ld. Counsel supports....
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....t, 2002 cannot be extended to tax the service receiver for the period prior to such amendment. In the light of the above order, the plea of the BAL that no liability for payment of service tax can be fastened upon them is required to be accepted.  6. There is yet another reason for holding that service tax cannot be levied upon BAL. The second proviso to Rule 6 under which the demand of service tax has been confirmed against BAL reads as under:- "The Service tax on the value of taxable services received during any calender month shall be paid to the credit of the Central Government ......... provided further that, in the case of a person who is a non-resident or is from outside India, does not have any office in India and is ....
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....ent case BAL is the Service Receiver. In other words, BAL is the client of KHI, Japan who is the Service Provider. The contention of the BAL that they cannot be both client and agent simultaneously, is, therefore, well founded. The proviso is obviously only to ensure that the service provider outside India not having any office in India, does not escape liability to pay if he has a representative in India/agent in India and to ensure that such representative/agent does not wriggle out of liability for payment of service tax on the ground that he did not render any taxable service in India. We also see substance in the contention of the appellants that the amendment to Rule 2 of the Service Tax Rules 1944 by insertion of clause (iv) providin....