2005 (3) TMI 573 - AT - Service Tax

Summary

Issues: Liability for service tax payment under collaboration agreement; Interpretation of relevant service tax rules.

In this case, the Appellate Tribunal CESTAT, New Delhi dealt with the issue of liability for service tax payment under a collaboration agreement between the respondents and a foreign service provider. The respondents received consulting engineering services from a German company and paid technical know-how fees for the services rendered. The service tax on these payments was not paid by either party, leading to a show cause notice for recovery of service tax and imposition of penalties. The Deputy Commissioner confirmed the demand for service tax and penalties, which was challenged by the respondents before the Commissioner (Appeals). The Commissioner (Appeals) set aside the adjudication order, citing the period of dispute being prior to the amendment in the service tax rules in August 2002, which made the service tax receiver liable to pay tax.

Upon hearing both sides, the Tribunal considered the collaboration agreement's Clause 4.07, which stated that the licensee (respondents) shall deduct tax from payments to be made. The department argued that this clause made the respondents liable for service tax payment as they were authorized by the service provider. However, the Tribunal disagreed, noting that during the relevant period, it was only the service provider who was liable to pay service tax, not any authorized person or the service receiver. Therefore, the Tribunal upheld the impugned order, stating that there was no merit in the department's argument and rejected the appeal. The judgment emphasized the clear language of the service tax rules during the relevant period, which did not impose liability on the service receiver authorized by the service provider.