2008 (10) TMI 36 - AT - Service Tax

Appellant, Exporter services of foreign middlemen used in procuring export orders - Revenue contend that during the period from July, 04 to Nov, 05, Appellant, is liable to pay the service tax - in cases where taxable service is provided by a non-resident who does not have any office in India and is received by a person in India, the service tax liability can be fastened on the service recipient in India only w.e.f. 1.1.05 - matter remanded to the Commissioner for requantification

Summary

Issues:
Service tax liability on a Public Limited Company for services received from foreign middlemen abroad under 'Business Auxiliary Service' category. Existence of Principal and Agent relationship between the company and foreign middlemen. Applicability of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 for collecting service tax from the recipient of services provided by off shore service providers.

Analysis:
The case involved the Appellants, a Public Limited Company, receiving services from middlemen abroad for procuring export orders, categorized as 'Business Auxiliary Service' under Section 65(19) of the Finance Act, 1994. The Revenue contended that the Appellants, as recipients of services from foreign service providers without any office in India, were liable to pay service tax under Rule 2(1)(d)(iv) of Service Tax Rules, 1994. Three show cause notices were issued for non-paid service tax, interest, and penalties. The Dy. Commissioner confirmed the demands, and penalties were imposed. On appeal, the Commissioner upheld the service tax demand and penalties but reduced them under different sections of the Finance Act, 1994. The appeals were filed before the Tribunal challenging the Commissioner's orders.

The Appellants argued that the service was not taxable as it was received from off shore locations before the introduction of Section 66A in 2006. They also contended that a legal contractual relationship of Principal and Agent should exist for demanding service tax under the 'Business Auxiliary Service' category. The Appellants disputed the invocation of Rule 2(1)(d)(iv) of Service Tax Rules, 1994, citing the absence of a notification for taxable services received from off shore providers before 2005.

The Departmental Representative cited legal precedents to support the liability of the Appellants to pay service tax for services received from foreign providers. The Tribunal analyzed the contentions and legal references presented by both sides. It rejected the Appellants' arguments regarding the absence of a Principal and Agent relationship and the non-applicability of Rule 2(1)(d)(iv) before 2005. The Tribunal referred to previous judgments and held that service tax liability on the recipient could be fastened only from January 1, 2005, for services provided by non-residents without an office in India.

The Tribunal disagreed with the Departmental Representative's reliance on a Supreme Court judgment, stating it was not applicable to the case. Consequently, the Tribunal remanded the matter to the Commissioner for reevaluation of the service tax demand and penalties in line with the findings. The appeals were disposed of accordingly.