2013 (10) TMI 965 - AT - Service Tax

Import of services - payment of royalty in installments - levy of service tax pre and post 18.4.2006 - Held that - Applicant had paid the license fees for using the software supplied/sold by the overseas supplier. It is also not in dispute that the license fees were required to be paid in ten installments to the overseas supplier. We find force in the arguments of the ld. Advocate for the Applicant that the installments paid prior to 18.04.2006 cannot be subjected to service tax under the reverse mechanism in view of the decision of the Hon ble Bombay High Court in Indian National Shipowners Associations (2008 (12) TMI 41 - HIGH COURT OF BOMBAY), which has been upheld by the Hon ble Supreme Court. Accordingly, predeposit of dues relating to ST Appeal No.250/11 is waived and its recovery stayed during the pendency of Appeal. Prima facie, we agree with the ld. Special Counsel for the Revenue that the installments paid after 18.04.2006 could be subjected to levy of service tax under Intellectual Property Rights. Thus, the Applicant could not able to make out a prima facie case for the installments paid after 18.04.2006. In these circumstances, keeping in view the interest of the revenue and the principle of laws settled in disposal of stay petition by the Hon ble High Court and the Hon ble Supreme Court, we direct the Applicant to deposit the entire amount of Service Tax of Rs.90,86,338 within a period of twelve weeks from today, and on deposit of the said amount, the balance dues adjudged would stand waived and its recovery stayed during pendency of the Appeals. Failure to deposit the said amount would result into dismissal of the said Appeal without further notice to the Applicant - stay granted partly.

Summary

Issues:
1. Whether the predeposit of certain amounts and penalties imposed on the Applicants should be waived.
2. Whether the installments paid by the Applicant to the overseas supplier prior to 18.04.2006 are chargeable to service tax.
3. Whether the installments paid after 18.04.2006 could be subjected to levy of service tax under Intellectual Property Rights.

Analysis:

Issue 1:
The Applicants filed two Applications seeking waiver of predeposit of specific amounts and equal penalties imposed on them in relation to two Appeals. The Advocate for the Applicant argued that the Applicant, a public sector undertaking, imported software from an overseas supplier, with the import value declared at Rs.3.34 crore. The Advocate contended that payments made prior to 18.04.2006 to the overseas supplier should not be subject to service tax under the reverse mechanism, citing relevant judgments. The Special Counsel for the Revenue acknowledged that payments made before 18.04.2006 could not be charged under Section 66A, but post that date, service tax could be levied under Intellectual Property Rights.

Issue 2:
The Tribunal found that the Applicant had paid license fees for using the software in installments to the overseas supplier, with the first installment paid on 31.03.2006 and the second on 05.05.2006. It was established that payments made before 18.04.2006 could not be subjected to service tax under the reverse mechanism, as per the decision of the Hon'ble Bombay High Court upheld by the Supreme Court. Consequently, the predeposit of dues related to one Appeal was waived, and recovery stayed during the pendency of the Appeal.

Issue 3:
Regarding the second Appeal, the Tribunal agreed with the Revenue's Counsel that installments paid after 18.04.2006 could be subject to service tax under Intellectual Property Rights. The Applicant failed to establish a prima facie case for the post-18.04.2006 installments. Therefore, the Tribunal directed the Applicant to deposit the entire service tax amount within twelve weeks, failing which the Appeal would be dismissed without further notice. Compliance was to be reported by a specified date.

This comprehensive analysis of the judgment addresses the issues raised, the arguments presented by both parties, and the Tribunal's findings and directives in a detailed manner.