2011 (1) TMI 790 - HC - Service Tax

Service tax liability - Recipient of service - the Bombay High Court in the case of Indian National Ship Owners Association v. Union of India 2008 (12) TMI 41 - BOMBAY HIGH COURT held that the liability to pay service tax by the recipient of service is only from 18-4-2006, which judgment has been affirmed by the Apex Court - Decided in favour of assessee.

Summary

Issues:
1. Liability of service tax prior to 18-4-2006
2. Penalty imposition for the period prior to 18-4-2006

Analysis:

Issue 1: Liability of service tax prior to 18-4-2006
The case involved appeals by the Revenue challenging a tribunal's decision on the liability of service tax before 18-4-2006. The assessee, a subsidiary of a German company, entered into a License Agreement for using trademarks and know-how, paying an annual royalty. The Revenue argued that this royalty constitutes a service under the Finance Act, 1994. The tribunal, following the Bombay High Court judgment, held that the liability to pay service tax by the recipient of service from a foreign service provider without an establishment in India arises only from 18-4-2006. Therefore, the tribunal set aside the demands and liabilities for the period before 18-4-2006. The Revenue appealed against this decision.

Issue 2: Penalty imposition for the period prior to 18-4-2006
The Revenue contended that the tribunal erred in not deciding the appeal on merits and sought a remand for fresh consideration. The Revenue argued that Notification 36 of 2004, along with Rule 2(1)(d)(iv) of the Service Tax Rules, establishes the liability to pay service tax from 1-1-2005. However, the tribunal's decision was based on the interpretation of Section 68 of the Act, which specifies that the liability to pay service tax is on the provider of service unless notified otherwise by the Central Government. The tribunal followed the Bombay High Court judgment, affirmed by the Apex Court, which declared that the liability of the recipient of service to pay service tax arises only from 18-4-2006. The High Court agreed with this view and dismissed the appeals, upholding the tribunal's decision.

In conclusion, the High Court upheld the tribunal's decision based on the interpretation of the relevant legal provisions and the precedent set by the Bombay High Court judgment. The liability to pay service tax by the recipient of service from a foreign provider without an establishment in India was held to arise only from 18-4-2006, leading to the dismissal of the Revenue's appeals.