2014 (7) TMI 670 - HC - Service Tax

Waiver of pre deposit - Service received in India or outside India - Whether the Tribunal was justified in not granting waiver of pre-deposit when there is no service received in India so as to attract the provisions of Section 66A of Finance Act, 1994 and Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006 - Held that - It is the specific case of the appellant that even as per the statement of Revenue, the services in this case was rendered outside India and there is no element of service received in India and therefore Section 66A of Finance Act, 1994 and Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006, do not apply to the facts of the present case. However, the Department also rely upon Section 65(96a) of the Finance Act, 1994, which defines the term Ship Management service and those services are taxable once the recipient is located in India and the provider is located outside India and therefore the question of taxable event does not arise in the case of services rendered outside India by an agent outside India. There are two important expressions in Section 35-F. One is undue hardship. This is a matter within the special knowledge of the applicant for waiver and has to be established by him. A mere assertion about undue hardship would not be sufficient. It was noted by this Court in S. Vasudeva v. State of Karnataka, (1993 (3) TMI 350 - SUPREME COURT OF INDIA) that under Indian conditions expression undue hardship is normally related to economic hardship. Undue which means something which is not merited by the conduct of the claimant, or is very much disproportionate to it. Undue hardship is caused when the hardship is not warranted by the circumstances. Order of Tribunal is modified that the Tribunal was not justified in ordering the pre-deposit in the manner stated in its order dated 10.6.2013; however, assessee is directed to make a pre-deposit of ₹ 50,00,000 towards pre-deposit on or before 8.8.2014 and subject to such compliance, as stated in the order of the Tribunal dated 10.6.2013, the pre-deposit of balance amount demanded shall remain waived and its collection shall stand stayed during the pendency of the appeal before the Tribunal - Conditional stay granted.

Summary

Issues:
1. Applicability of Section 66A of Finance Act, 1994 and Rule 3 of the Taxation of Services (Provided from outside India and Received in India) Rules, 2006.
2. Justification of waiver of pre-deposit.
3. Interpretation of the provisions in the context of services rendered abroad with no element of service received in India.

Analysis:

Issue 1: Applicability of Section 66A and Rule 3
The case involved challenges to orders of the Customs, Excise and Service Tax Appellate Tribunal regarding the payment of service tax on remittances made to foreign agents for various services. The appellant contended that as per Section 66A of the Finance Act, 1994, services received from outside India are taxable only if received in India. The Tribunal's finding of service received in India was disputed based on the absence of material evidence supporting this claim. The appellant argued that the services were rendered outside India, thus not falling under the purview of the tax provisions. The Tribunal's decision was deemed not supported by material evidence, highlighting a legal question for the Tribunal to address.

Issue 2: Justification of Waiver of Pre-deposit
The appellant sought waiver of pre-deposit based on financial hardship, citing a loss in the profit and loss statement and liquidity constraints due to margin money deposits. The Tribunal's decision to order a pre-deposit of a significant amount was challenged as erroneous, emphasizing the appellant's inability to meet the financial demand. The appellant's plea of undue hardship was supported by the overall financial position of the company, which reflected a loss despite some liquid assets. The Tribunal's consideration of undue hardship was found to be misconstrued, leading to a modification of the pre-deposit amount in favor of the appellant.

Issue 3: Interpretation of Provisions
The primary legal issue revolved around the interpretation of Section 66A of the Finance Act, 1994 and Rule 3 of the Taxation of Services Rules in the context of services provided abroad with no receipt in India. The Tribunal's decision was critiqued for not adequately addressing the legal question of whether service tax applies when services are rendered abroad and no service is received in India. The appellant's argument that the tax provisions do not apply in such circumstances was found to have merit, leading to a modification of the Tribunal's order regarding pre-deposit and restoration of the appeal.

In conclusion, the High Court modified the Tribunal's orders, emphasizing the legal interpretation of tax provisions and the consideration of undue hardship in determining the pre-deposit amount. The judgment highlighted the necessity for the Tribunal to address legal questions and financial constraints appropriately in tax matters involving services rendered abroad with no element of service received in India.