2015 (3) TMI 524 - AT - Service Tax

Consulting Engineers service - Demand confirmed Jointly and severally - reverse charge mechanism - Held that - As is evident from the paragraph from the impugned order, the demand on the appellants M/s Jai Bharat Maruti Ltd. has been confirmed in terms of the reverse charge mechanism under Rule 2 (1) (d) (iv) of the Service Tax Rules. It is no longer res-integra that the levy of Service Tax on the recipient of Service under reverse charge mechanism was not legally sustainable prior to 18.4.2006 when Section 66A was introduced in the Finance Act 1994 as has been held, for example, in the case of Commissioner of Central Excise Vs. Bayers Diagnostics 2012 (9) TMI 633 - Gujarat High Court by Gujrat High Court. It is seen that the period involved in this case is 1998-1999 to 2002-03 and therefore the appellant M/s Jai Bharat Maruti Ltd. can not be required to pay the impugned service tax under the reverse charge mechanism even if the service received by them is held to be classifiable under Consulting Engineering Service. - impugned demand is clearly unsustainable - Decided in favour of assessee.

Issues:
1. Classification of service under Consulting Engineers service
2. Liability to pay service tax
3. Applicability of reverse charge mechanism
4. Sustainability of the service tax demand

Classification of service under Consulting Engineers service:
The appellants contested that the service rendered by them should not be classified under Consulting Engineering Service due to the nature of the service provider. They argued that the service tax demand on both companies jointly or severally was not sustainable as the adjudicating authority failed to uniquely identify the party liable to pay the tax. The Commissioner (Appeals) noted that the liability of service tax lies on the recipients of the service under Rule 2(1)(d)(iv) of the Service Tax Rules. It was established that one of the companies was not liable to pay the service tax, leading to the conclusion that the demand against that company was not sustainable.

Liability to pay service tax:
The responsibility for payment of service tax was a key issue in the case. The Commissioner (Appeals) referred to a judgment by the Hon'ble Apex Court to support the decision that the liability of service tax lies on the recipients of the service as per the agreement between the appellant and the foreign company. The Commissioner's analysis highlighted the legal basis for making the recipients liable to pay service tax, emphasizing the provisions in the Service Tax Rules and the agreement between the parties. This clarification played a crucial role in determining the liability of the parties involved.

Applicability of reverse charge mechanism:
The demand on one of the appellants was confirmed under the reverse charge mechanism under Rule 2(1)(d)(iv) of the Service Tax Rules. However, it was established that prior to 18.4.2006, the levy of service tax on the recipient of service under the reverse charge mechanism was not legally sustainable. Citing a case by the Gujrat High Court, it was clarified that the reverse charge mechanism was not applicable for the period in question (1998-1999 to 2002-03). This analysis led to the conclusion that the appellant in question should not be required to pay the service tax under the reverse charge mechanism.

Sustainability of the service tax demand:
Based on the detailed analysis of the issues related to classification, liability, and the applicability of the reverse charge mechanism, it was concluded that the impugned demand was clearly unsustainable. The appeals filed by the appellants were allowed, indicating that the service tax demand against them was not valid based on the legal principles and judgments cited during the proceedings.

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