2010 (7) TMI 512 - AT - Service Tax

Classification - Demand - Intellectual Property Services - The appellants have also submitted that since it had deposited the tax found due along with applicable interest before issue of show-cause notice basic to the proceedings, the matter should have been treated as closed in terms of section 73(3) of the Act - there is considerable merit in the claim of the appellants that the tax and interest confirmed against the appellants were not liable to be paid by it - Decided in the favour of the assessee

Summary

Issues:
1. Liability of the appellant to pay service tax on "Intellectual Property Services" received from a foreign collaborator.
2. Imposition of penalties under sections 76 & 77 of the Act.
3. Applicability of section 73(3) of the Act regarding the deposition of tax before the show-cause notice.

Analysis:

Issue 1: Liability to pay service tax
The appellant, M/s. Kar Mobile Ltd., received "Intellectual Property Services" from its foreign collaborator, classified under section 65(105)(zzr) of the Finance Act, 1994. The original authority confirmed a demand of Rs. 2,86,778 as service tax, which the appellant paid along with applicable interest. The Commissioner (Appeals) sustained the order of the original authority, except for penalties under sections 76 & 77 of the Act. The Tribunal considered the judgment of the Hon'ble High Court of Mumbai in a similar case and noted that the authorities were empowered to recover service tax from persons in India as recipients of services provided by foreign entities only from 18-4-2006 onwards, after the introduction of section 66A in the Act. As the impugned services were received before this date, the Tribunal found merit in the appellant's claim that the tax and interest were not liable to be paid. Consequently, the Tribunal vacated the penalty imposed on the appellant and allowed the appeal.

Issue 2: Imposition of penalties
The appellant sought to vacate the penalties imposed on it, arguing that the service tax itself was not liable to be paid due to the timing of the services received from the foreign collaborators. The Tribunal agreed with this argument, emphasizing that no penalty could have been imposed on the appellant in this scenario. Therefore, the penalties under sections 76 & 77 of the Act were set aside by the Tribunal.

Issue 3: Applicability of section 73(3) of the Act
The appellant contended that since it had deposited the tax due along with applicable interest before the issuance of the show-cause notice, the matter should have been considered closed under section 73(3) of the Act. While the Tribunal did not explicitly address this contention in its decision, the vacating of the penalties and allowing of the appeal implied that the Tribunal considered the matter resolved in favor of the appellant based on the primary issue of liability to pay service tax.

In conclusion, the Appellate Tribunal CESTAT, Bangalore, in the case of M/s. Kar Mobile Ltd., ruled in favor of the appellant, setting aside the penalties imposed and allowing the appeal based on the timing of the services received and the corresponding liability to pay service tax under the relevant provisions of the Finance Act, 1994.