2013 (7) TMI 782 - AT - Service Tax

Levy of service tax - Assessee entered into license agreement with a foreign company - Royalty paid for disposal of valuable information - Department issued a show cause notice for non-levy of service tax - Held that - services were being received by the respondent from foreign company - Demand has been raised in the show cause notice under reverse charge mechanism from the recipient of the service as per Rule 2(1) (d) (iv) of the Service Tax Rules - Recipient of service is liable to service tax from 18.04.2006 only - Since in the present appeal demand is raised for the period prior to 18.04.2006 on recipient of service, Respondent in the present case is not liable to service tax for the period prior to 18.04.2006 - Following decision of INDIAN NATIONAL SHIPOWNERS ASSOCIATION Versus UNION OF INDIA 2008 (12) TMI 41 - HIGH COURT OF BOMBAY - Decided against Revenue.

Summary

Issues:
Classification of services under Consulting Engineering services, liability of service tax on royalty charges, application of reverse charge mechanism, interpretation of Rule 2(1)(d)(iv) of the Service Tax Rules, applicability of section 66A of the Finance Act, 1994.

Analysis:
The appeal was filed by the revenue against an order concerning the non-payment of service tax on royalty charges by a company engaged in manufacturing paints falling under Chapter 32 of the Central Excise Tariff Act, 1985. The company had entered into a license agreement with a foreign entity, paying royalties for valuable information and know-how related to manufacturing processes. The department issued a show cause notice for non-levy of service tax, which was confirmed by the Original Authority under consulting engineering services. The Commissioner, Central Excise (Appeals) set aside the original order, leading to the revenue's challenge in the present appeal.

The Tribunal noted that the services were received by the company from a foreign entity, and the demand was raised under the reverse charge mechanism for the period 2002-2003 and 2004-2005. Referring to relevant legal precedents, the Tribunal highlighted that the recipient of the service is liable to service tax only after the enactment of section 66A in the Finance Act, 1994. As the demand in the present case was for the period prior to 18.04.2006, the recipient was not liable to service tax for that period. Therefore, the Tribunal rejected the revenue's appeal without delving into the classification of the service, ultimately dismissing the appeal.

In conclusion, the Tribunal's decision centered on the application of the reverse charge mechanism, the interpretation of relevant legal provisions, and the timing of liability for service tax. By considering the legislative framework and judicial precedents, the Tribunal clarified the recipient's liability for service tax and upheld the dismissal of the revenue's appeal.