2011 (4) TMI 612 - AT - Service Tax

Waiver of pre-deposit - Appellant had raised FCCBs in the international capital market and the money so raised was invested in Mauritius. - whether the assessee is liable to pay service tax under the reverse charge mechanism in a situation where service provider is outside India - once it is an admitted fact that the money raised were invested outside India, but only because the said money raised is supposedly in relation to the benefit or business of the service recipient, located in India, provisions of Rule 3(3) cannot be invoked - appellant has made out a prima-facie case for the waiver of the pre-deposit of the amounts involved as it is on record that the services which were rendered by the service provider was outside India and for consumption outside India - Decided in favour of the assessee

Summary

Issues:
1. Whether the appellant is liable to pay service tax under the reverse charge mechanism when the service provider is outside India.

Analysis:
The appellant filed a stay petition seeking the waiver of pre-deposit of specific amounts, including service tax, interest, and penalties. The confirmed demand arose due to the appellant not discharging service tax liability on commission paid to a person abroad for services rendered. The main issue was whether the appellant is liable to pay service tax under the reverse charge mechanism when the service provider is outside India. The appellant argued that since the services were rendered and consumed outside India, the fact that their registered and main office is in India should not be relevant for service tax liability. They cited a previous judgment where a similar situation was granted unconditional stay, emphasizing that services rendered and consumed outside India are not taxable in India.

The lower authorities had invoked provisions of Rule 3(iii) of the Taxation of Services Rules, 2003 for demanding service tax. However, the appellate tribunal found that the money raised through Foreign Currency Convertible Bonds (FCCBs) was invested in Mauritius, outside India, and the services were also rendered and consumed outside India. The tribunal noted that even though the money raised was related to the benefit or business of the service recipient in India, Rule 3(3) could not be invoked since the investment was made outside India. The tribunal concluded that the appellant had established a prima facie case for the waiver of pre-deposit as the services were indeed rendered and consumed outside India. Consequently, the tribunal allowed the application for waiver of pre-deposit and stayed the recovery of amounts until the appeal's disposal.

In summary, the judgment focused on the applicability of service tax under the reverse charge mechanism when services are provided by a foreign entity outside India. The tribunal emphasized that if services are rendered and consumed outside India, the mere presence of the appellant's offices in India should not automatically trigger service tax liability. The decision was based on the specific circumstances of the case, where the money raised through FCCBs was invested outside India, leading to the waiver of pre-deposit and stay on recovery of amounts pending appeal disposal.