2004 (10) TMI 11 - AT - Service Tax

Service Tax (1) Legal responsibility to pay service tax (2) Non-Resident/Individual out-side India providing service in India Use of Trademark

Summary

Issues:
1. Confirmation of demand of Service Tax by the Commissioner (Appeals).
2. Liability of M/s. Bajaj Auto Ltd. (BAL) for payment of Service Tax on consulting engineering services provided by M/s. Kawasaki Heavy Industries, Japan (KHI).
3. Interpretation of agreements between BAL and KHI regarding payment terms.
4. Applicability of Income Tax Act provisions on deduction of tax at source to Service Tax.
5. Legal provisions regarding liability for payment of Service Tax by service receiver.
6. Treatment of royalty payments in relation to service tax liability.
7. Applicability of Rule 6 of the Service Tax Rules, 1994 on the case.
8. Prospective vs. retrospective application of amendments to Service Tax Rules.
9. Tribunal's precedent on the levy of service tax on royalty payments.
10. Decision on the demand and penalty imposed on BAL.

Analysis:
1. The Commissioner (Appeals) confirmed the demand of Service Tax on consulting engineering services provided by KHI to BAL, along with interest and penalty. BAL contested the demand, arguing that they were service receivers and not liable for service tax payment as per Rule 6 of the Service Tax Rules, 1994. The Tribunal reviewed the agreements between BAL and KHI to determine the nature of services and the payment terms.

2. BAL maintained that the agreements with KHI involved deduction of Income Tax at source but did not provide for payment of Service Tax. The Tribunal considered the provisions of the Income Tax Act, 1961, and the absence of similar provisions for Service Tax. Referring to a precedent, the Tribunal held that BAL was not obligated to deduct and pay service tax in the absence of specific provisions.

3. The Tribunal analyzed the applicability of Rule 6 of the Service Tax Rules, 1994, which requires a person outside India without an office in India to pay service tax. BAL argued that they were the service receiver and not the agent of KHI, the service provider. The Tribunal agreed with BAL's interpretation, holding that the rule did not apply retrospectively and BAL was not liable for service tax payment.

4. Regarding the treatment of royalty payments, the Tribunal referred to a previous judgment where it was held that the right to use a trademark is a transaction in property, not consultancy. As BAL had the right to use the Kawasaki brand name under the agreements, the Tribunal concluded that royalty payments were not subject to service tax.

5. Ultimately, the Tribunal set aside the demand and penalty imposed on BAL, ruling in favor of BAL on the merits of the case without addressing the plea of time bar raised by BAL. The decision highlighted the legal interpretations of the agreements, tax provisions, and Service Tax Rules to determine BAL's liability for service tax payment and royalty treatment.