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2011 (12) TMI 201 - HC - Service TaxConstitutional validity of levy of service tax on import of services - Does the Parliament have the powers to legislate for any territory, other than the territory of India or any part of it? - Section 66A of Chapter-V of Finance Act, 1994 and Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 Instructions F. No.275/7/2010-CX.8A dated 30.6.2010 as ultra vires to the Finance Act, 1994 100% EOU - Held that - Section 66A - Charge of Service Tax on Services received from outside India - as inserted by Finance Act, 2006 vide notification dated 18.4.2006 w.e.f. 1.5.2006 and Taxation of Services (Provided from Outside India) Rules, 2006 made in exercise of powers conferred by Sections 93 and 94 read with Section 66A of the Finance Act, 1994 notified on 19.4.2006 and amended by notification dated 27.2.2010, does not suffer from vice of unconstitutionality, either on the ground of lack of legislative competence, or on the ground of extra territorial operation of laws. So far as the levy of the Service Tax on the services alleged to be received by the petitioner from Software Services LC (SSLC) having its office in USA under the Master Services Agreement , and for which the letter dated 18.6.2010 has been sent to the petitioner on the basis of an audit report of the audit inspection, since there has been no adjudication under the Act, we direct that the competent authority under the Finance Act, 1994 to decide the matter in accordance with the law laid down.
Issues Involved:
1. Constitutional validity of Section 66A of Chapter-V of the Finance Act, 1994. 2. Validity of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. 3. Instructions F. No.275/7/2010-CX.8A dated 30.6.2010. 4. Liability to pay Service Tax on commission/fee paid to a company located in the USA for promoting and marketing services in the USA. 5. Jurisdiction and legality of the letter issued by the Commissioner, Central Excise, Customs and Service Tax, Noida dated 18.6.2010. Detailed Analysis: 1. Constitutional Validity of Section 66A of Chapter-V of the Finance Act, 1994: The petitioner challenged the constitutional validity of Section 66A, arguing that it creates another taxable event by taxing services received in India from outside, which is against the legislative scheme and impractical. The court noted that Section 66A was introduced to tax services received from outside India as if they were provided in India, thus applying all provisions of the Finance Act, 1994 to such services. The court upheld the constitutionality of Section 66A, stating that it does not suffer from the vice of unconstitutionality, either on the ground of lack of legislative competence or on the ground of extra-territorial operation of laws. The court referred to precedents that supported the validity of economic legislation with extra-territorial implications if there is a real connection with India. 2. Validity of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006: The petitioner argued that the Rules of 2006 are arbitrary and ambiguous, creating an artificial taxable event. The court found that these rules were enacted to operationalize Section 66A and that they are valid. The court emphasized that the rules are within the legislative competence of the Parliament and do not extend beyond the territorial jurisdiction of India, as they apply to services received in India. 3. Instructions F. No.275/7/2010-CX.8A dated 30.6.2010: The petitioner contended that these instructions are ultra vires the Finance Act, 1994. The court did not find merit in this argument, as the instructions were consistent with the legislative intent of Section 66A and the accompanying rules. 4. Liability to Pay Service Tax on Commission/Fee Paid to a Company Located in the USA: The petitioner argued that services provided by a foreign company outside India should not attract service tax. The court, however, noted that the petitioner received services from a foreign company (SSLC) for promoting business in the USA, and under the agreement, the services were executed by the petitioner in India. The court held that such services are taxable under Section 66A as they are received in India. The court referred to the agreement's terms, which indicated that the services were indeed received and utilized in India, making them liable for service tax. 5. Jurisdiction and Legality of the Letter Issued by the Commissioner, Central Excise, Customs and Service Tax, Noida Dated 18.6.2010: The petitioner sought to quash the letter demanding service tax, arguing it was without jurisdiction and against the principles of natural justice. The court found that the letter was not a final notice but part of the audit process. The court directed that the competent authority under the Finance Act, 1994, should adjudicate the matter in accordance with the law, giving the petitioner an opportunity to present their case. Conclusion: The court upheld the constitutional validity of Section 66A and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The petitioner's liability to pay service tax on services received from a foreign company was affirmed, and the court directed that the matter be adjudicated by the competent authority under the Finance Act, 1994. The writ petition challenging the constitutional validity was dismissed, and the petition regarding the letter was disposed of with directions for proper adjudication.
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