2011 (4) TMI 917 - AT - Service Tax

Import of services - whether appellant as recipient of technical consultancy services from foreign service provider were liable for payment of service tax during the period August, 2002 to March, 2004 - Held that - It is not the case of the department that the Foreign Service provider had some office or establishment in India or that the service had been provided by them in India. In view of the decision in case of Indian National Shipowners Association vs. UOI (2009 (12) TMI 850 - SUPREME COURT OF INDIA) wherein it was held that during the period prior 18.4.2006 the recipient of taxable service in India, receiving service from offshore service provider, not having office in India cannot be made liable to pay service tax only on the basis of Rule 2(1)(d) of Service Tax Rules as specific provision making the service recipient in India liable to pay service tax was introduced only with effect from 18.4.2006 - Decided in favor of assessee.

Summary

Issues:
1. Liability of the appellant to pay service tax on services received from non-resident foreign service providers.
2. Interpretation of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994.
3. Applicability of Section 66A of the Finance Act, 1994.
4. Effect of the proviso to Rule 6(1) of Service Tax Rules pre and post 16.8.2002.
5. Judicial precedents on the liability of the service recipient for service tax.

Analysis:

1. The dispute centered around the liability of the appellant to pay service tax on services received from non-resident foreign service providers between August 2002 and March 2004. The appellant contended that there was no statutory provision during that period making them liable for service tax payment. The department argued that Rule 2(1)(d)(iv) mandated the appellant, as the recipient, to pay the service tax.

2. Rule 2(1)(d)(iv) stipulated that the person liable for paying service tax for services received from non-resident foreign service providers without an office in India would be the recipient in India. The appellant argued that without a specific notification or provision in the Finance Act, 1994, they could not be held liable. The department relied on judicial precedents, including the Kerala State Electricity Board case, to support their position.

3. The introduction of Section 66A in the Finance Act, 1994 on 18.4.2006 deemed the service recipient in India as the service provider for services received from non-resident providers without an office in India. The appellant contended that Section 66A could not have retrospective effect, as held in a Bombay High Court case.

4. The proviso to Rule 6(1) of the Service Tax Rules, which was in force before 16.8.2002, mandated the payment of service tax by the non-resident service provider or an authorized person on their behalf. Post 16.8.2002, Rule 2(1)(d)(iv) shifted the liability to the recipient in India. The judgment differentiated between the applicability of these rules pre and post 16.8.2002.

5. Citing legal precedents, including the Indian National Shipowners Association case, the judgment emphasized that prior to 18.4.2006, there was no explicit provision in the Finance Act, 1994 making the service recipient in India liable for service tax. The judgment concluded that without statutory backing, the appellant could not be held liable for service tax during the relevant period, and thus, the impugned order was set aside, and the appeal was allowed.