2015 (12) TMI 1167 - AT - Service Tax

Technical testing and analysis service - reverse charge - services are imported or not - penalties under section 76, 77 and 78 - Non filing of ST-3 returns - Held that - Service in question is purely a testing service which is performed in the laboratory of M/s KHVL, Netherlands. The certificate from KHVL shows that the test was conducted in their laboratory in Netherlands. Under section 66(A), any service received by a person in India from outside India shall be treated as if the recipient had himself provided the service. Rule 3 of the Taxation of Services (Provided from Outside India and received in India) Rules, 2006 determine the fact as to when a service is considered to be received in India. Service categorized under section 65(105)(zz) is covered under Rule 3(ii). The lower authorities have failed to understand the provisions of Rule 3 ibid, particularly Rule 3(ii). Proviso to Rule 3(ii) states that when a service is partly performed in India, it shall be treated as performed in India. Revenue has not justified how the service is performed outside India. Therefore, it cannot be said that the service has been received in India. The service tax is clearly not payable by the appellant in the present case. As tax is not payable, the question of interest and penalties and other fees does not arise. - Impugned order is set aside - Decided in favour of assessee.

Summary

Issues: Liability of service tax for testing services provided from outside India.

Analysis:
1. The appellant, engaged in manufacturing goods falling under Chapter 85 of the Central Excise Tariff Act, sent goods for calibration testing to M/s Kema High Voltage Laboratories (M/s KHVL) in Netherlands. The Revenue imposed service tax and interest on the appellant for these testing services.

2. The lower authorities upheld the liability of service tax under the category of Technical testing and analysis under section 65(105)(zzh). They held that the service was received in India and partly performed in India, making it leviable to service tax under Rule 3(ii) of the Taxation of Services (Provided from outside India and received in India) Rules, 2006.

3. However, the appellate tribunal noted that the testing service was purely performed in the laboratory of M/s KHVL in Netherlands, as evidenced by the certificate from KHVL. The tribunal emphasized that under section 66(A), a service received from outside India is treated as if the recipient provided the service. The tribunal found that the lower authorities failed to correctly interpret Rule 3(ii) and the proviso, which states that when a service is partly performed in India, it shall be treated as performed in India.

4. The tribunal concluded that the service was not performed in India, and therefore, the service tax was not payable by the appellant. Consequently, the tribunal set aside the impugned order, allowed the appeal, and directed for consequential relief in accordance with the law.

This judgment clarifies the application of service tax rules concerning services provided from outside India and received in India. It highlights the importance of correctly interpreting the rules to determine the place of performance of services for taxation purposes.