2011 (7) TMI 937 - AT - Service Tax

Waiver of amount of service tax of Rs. 17,38,176/- interest and penalty - The case of the applicant is that the erectioning, commissioning and installation of transformers are done by third party located outside India and as the applicant has not provided any taxable service, the demand is not sustainable - the applicant is manufacturing transformers and some of the transformers so manufactured are exported. The manufacturing and commissioning are different activities - Held that as no part of service is performed in India hence the applicant has a strong case of waiver of pre-deposit of service tax, interest and penalty - Decided in favor of the assessee

Issues:
1. Waiver of service tax, interest, and penalty amounting to Rs. 17,38,176.
2. Interpretation of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
3. Determination of whether the applicant provided taxable service by engaging third parties for erectioning, commissioning, and installation of transformers.
4. Assessment of whether the service provided by the applicant was partly performed in India.

Analysis:

1. The applicant sought the waiver of a significant amount of service tax, interest, and penalty totaling Rs. 17,38,176. The contention was based on the argument that no taxable service was provided in India as the erectioning, commissioning, and installation of transformers were carried out by third parties located outside India. The applicant relied on the Taxation of Services Rules, 2006, specifically Rule 3(ii), which states that the provider in India is liable to pay service tax only when the taxable service is partly performed in India. The Tribunal found merit in the applicant's argument and granted the waiver of the pre-deposit of service tax, interest, and penalty, staying the recovery during the appeal process.

2. The Revenue, on the other hand, contended that the applicant did provide taxable service by engaging third parties for the erectioning, commissioning, and installation of transformers. It was argued that since the transformers were manufactured in India and exported for installation at the customer's location, the service was partly provided in India. However, the Tribunal noted that the manufacturing and commissioning activities were distinct, and the commissioning and erectioning were carried out by third parties located outside India. Therefore, the Tribunal prima facie found that no part of the service was performed in India, supporting the applicant's case for the waiver of the pre-deposit of service tax, interest, and penalty.

3. The Tribunal's analysis focused on the key distinction between the manufacturing and commissioning activities of the applicant. While the manufacturing of transformers took place in India, the commissioning and erectioning were outsourced to third parties outside the country. This distinction was crucial in determining the applicability of service tax, with the Tribunal concluding that since no part of the service was performed in India, the applicant had a strong case for the waiver of the pre-deposit amount. The Tribunal's decision to grant the waiver and stay the recovery during the appeal process was based on this analysis and interpretation of the relevant rules and activities involved in the case.

In summary, the judgment by the Appellate Tribunal CESTAT, New Delhi, involved a detailed analysis of the applicant's request for the waiver of service tax, interest, and penalty based on the interpretation of relevant rules and the nature of services provided. The Tribunal found in favor of the applicant, ruling that since the commissioning and erectioning activities were carried out by third parties located outside India, no taxable service was partly performed in India, justifying the waiver of the pre-deposit amount.

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