2014 (10) TMI 65 - HC - Service Tax

Import of service - reverse charge - Consulting engineer service - Held that - From the record, it appears that as per Section 68 of the of Finance Act, 1994, the Service Tax is liable and to be paid by the person who is providing taxable service. But the legislature has made an exception in the case of service provided by entities out side India. In such cases by virtue of Section 66A of the Act, the service recipient will have to pay service tax. Section 66A of the Act was introduced by the legislature vide Finance Act, 2006, with effect from 18.4.2006. Prior to Section 66A, the statute had provided no mechanism for recovery of payment from entities outside India. Rule 2(1)(d)(iv) was challenged before the Bombay High in the Case of Indian National Shipowners Association Vs. Union of India, 2008 (12) TMI 41 - BOMBAY HIGH COURT and the said rule was declared ultra vires. The Hon ble Supreme Court in the S.L.P., uphold the order of the Bombay High Court in the case of Union of India Vs. Indian National Shipowners Association, 2009 (12) TMI 850 - SUPREME COURT OF INDIA . Thus, the said verdict has attained finality. In other words, the said rule was declared as ultra vires. Thereafter, the Department has also issued a Circular No.276/8/2009-Cx dated 26.9.2011 by stating that service received from non-resident or person located outside India will not be taxed before 18.4.2006 i.e. before coming into effect of Section 66A of the Finance Act, 1944. No interference with impugned order - Decided against Revenue.

Summary

Issues:
Department's appeal against Customs, Excise & Service Tax Appellate Tribunal's orders dated 17.12.2004 and 1.7.2005 regarding service tax payment by the respondent for consulting engineer services provided to an entity outside India.

Analysis:
The High Court heard appeals by the Department challenging orders of the Tribunal related to service tax liability on consulting engineer services provided to an entity outside India. The respondent had signed a sales agreement with a foreign entity for equipment purchase. The A.O. alleged non-payment of service tax by the respondent for acting as a Consulting Engineer. While the first appellate authority upheld the demand and penalty, the Tribunal reversed it. The Department contended that the respondent was liable for service tax under Section 68 of the Finance Act, 1994. However, the Court noted that Section 66A of the Act, effective from 18.4.2006, shifted the service tax liability to the service recipient for services provided by entities outside India.

The dispute in this case pertained to the period before the enactment of Section 66A. The A.O. relied on Rule 6 of the Service Tax Rules, 1994, which mandated service tax payment by a person authorized by a non-resident service provider. However, this rule was challenged in the Indian National Shipowners Association case before the Bombay High Court and subsequently the Supreme Court, where it was declared ultra vires. Following this, the Department issued a circular stating that services received from non-residents would not be taxed before 18.4.2006. Therefore, the High Court held that the respondent was not liable to pay tax under the invalidated rule.

Consequently, the Court found no grounds to interfere with the Tribunal's orders, upholding them due to the invalidity of the rule mandating tax payment by the service recipient. As a result, both appeals were dismissed at the admission stage.