2015 (3) TMI 666 - AT - Service Tax

Import of services - associated enterprises - though the services were provided period prior to 18.04.2006 when Section 66A had been introduced but payment was made after 18.4.2006 - Held that - The department has confirmed the service tax demand of ₹ 3,18,73,116/-on the ground that on account of amendment to Section 67 by introducing Explanation - w.e.f. 10.05.2008, the appellant company would be treated as having made payment on this date and, therefore, serviced tax would be chargeable. In our view, the ground on which this service tax demand has been made is totally wrong, as when undisputedly this service tax demand is in respect of the services received by the appellant company from their Holding Company located abroad in respect of services received during the period prior to 18.04.2006 and when the taxing event for the service tax is the provision of service and not the receipt of payment, in view of the judgment of Hon'ble Bombay High Court in the case of Indian National Shipping Owners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT , no service tax would be chargeable on the service received by the appellant company from the holding company located abroad during the period prior to 18.04.2006 and accordingly, this service tax demand is not sustainable. - Decided in favor of assessee.

Summary

Issues:
1. Service tax demand in respect of services received from the appellant's Holding Company (Associate Company) prior to 18.04.2006.
2. Service tax demand for services received from other offshore service providers from 18.04.2006 to 31.03.2007.

Analysis:

1. The first issue pertains to the service tax demand of Rs. 3,18,73,116/- for services received from the appellant's Holding Company before 18.04.2006. The Commissioner confirmed this demand based on an amendment to Section 67, treating the appellant as having made payment on 10.05.2008. However, the Tribunal disagreed, citing the principle that service tax liability arises upon the provision of service, not payment receipt. Referring to the Bombay High Court judgment, the Tribunal ruled that no service tax is chargeable for services received before 18.04.2006 from the foreign holding company. The demand was deemed unsustainable.

2. The second issue concerns the service tax demand of Rs. 87,20,909/- for services received from other offshore providers between 18.04.2006 and 31.03.2007. The appellant did not dispute this liability but argued they had started paying service tax from 1.1.2005 on such services. The Tribunal noted that the appellant had already paid Rs. 93,73,127/- towards service tax, including amounts set aside for the first demand. Considering this, the Tribunal set aside the demand of Rs. 87,20,909/- and remanded the matter for re-quantification, instructing to consider the appellant's claim of timely service tax payments. If the demanded amount had been paid, no further liability or penalty would apply.

In conclusion, the Tribunal found the service tax demand from the holding company prior to 18.04.2006 unsustainable and directed a re-evaluation of the demand related to services from other offshore providers. The judgment favored the appellant's position on both issues, emphasizing the legal principles governing service tax liability based on service provision rather than payment receipt.