2005 (10) TMI 597 - AT - Service Tax

Summary

Issues:
- Liability of service tax on the recipient of services provided by a foreign person.
- Interpretation of the technical assistance agreement and relevant provisions of the Service Tax Rules.
- Applicability of withholding tax provisions in the agreement on the liability of service tax.

Analysis:
1. Liability of service tax on the recipient of services provided by a foreign person:
The appeal was filed by the Revenue against the order of the Commissioner (Appeals) regarding the payment of service tax by M/s. Mother son Sumi Systems Ltd. (MSSL) for services received from M/s. Sumi Tomo Wiring Systems Ltd., Japan (STWSL). The issue revolved around whether the recipient of services could be held liable for service tax when the services were provided by a foreign person without appointing an authorized representative for payment of service tax. The appellant argued that prior to August 11, 2002, service tax was payable by the foreign service provider's authorized representative, and only after the amendment in August 2002, the recipient became liable for service tax if the services were provided by a foreign person. The tribunal referred to relevant precedents and ruled in favor of the appellant, emphasizing that the liability for service tax prior to the amendment did not arise when the recipient was not appointed as the authorized agent of the service provider.

2. Interpretation of the technical assistance agreement and Service Tax Rules:
The Revenue contended that Article 26 of the agreement between the service provider and the recipient mandated the deduction of withholding tax in India, implying a broader liability. However, the tribunal analyzed the agreement and found that Article 9.1 did not address the payment of service tax by the respondents. The Commissioner (Appeals) provided sound reasoning, highlighting the inapplicability of certain provisions of the Service Tax Rules to the case in question. The tribunal agreed with the Commissioner's analysis, emphasizing that the agreement's provisions did not impose a direct burden on the appellants to pay service tax, as withholding tax referred to income taxation and did not authorize the appellants to discharge the service provider's service tax liability.

3. Applicability of withholding tax provisions in the agreement on the liability of service tax:
The tribunal further examined Article 9.1 and Article 26 of the technical assistance agreement to determine whether they authorized the appellants to pay service tax on behalf of the service provider. It was concluded that the provisions in the agreement did not place a burden on the appellants to pay service tax, as the primary responsibility for service tax rested with the service provider. The tribunal, based on the Commissioner (Appeals)'s reasoning, rejected the appeal of the Revenue, finding no merit in their arguments.

In conclusion, the tribunal upheld the decision of the Commissioner (Appeals) and dismissed the Revenue's appeal, emphasizing the specific provisions of the technical assistance agreement and the Service Tax Rules in determining the liability for service tax in the case of services provided by a foreign person.