2009 (1) TMI 45 - HC - Service Tax

Taxable Event - services were received by respondent between November 2001 and March 2002 while the invoice has been raised and settled in September 2003 - At the time of providing services there was no service tax but at the time of realizing the amount service tax was leviable - held when the services were rendered by the service provider and received by the respondent the liability was not cast on the recipient of the services.

Summary

Issues:
1. Interpretation of taxable event in Service Tax - realization of payment or time of rendering service.
2. Applicability of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 to service receivers.

Analysis:
1. The appellant challenged the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) order, questioning whether the taxable event in Service Tax is the realization of payment for services rendered or the time of rendering the service. The appellant argued that the liability to pay Service Tax was shifted to the recipient of the service from 16.08.2002 onwards as per Rule 2(1)(d)(iv) of the Rules. The services in question were received between November 2001 and March 2002, with the invoice raised and settled in September 2003. The appellant contended that the respondent was required to pay Service Tax on services received from a sister company in Germany.

2. CESTAT found that the liability to pay Service Tax was not on the recipient of the services when they were rendered and received between November 2001 and March 2002, as the liability was shifted to the recipient only from 16.08.2002 onwards. The taxable event for Service Tax is providing taxable services, defined by Section 65(105) of the Act. The Rules specify that the person liable for paying service tax in the case of services provided by a non-resident without an office in India is the person receiving the service in India. The Tribunal held that the taxable event is the rendering of taxable service, which occurred between November 2001 and March 2002. The raising of invoices and payment thereafter cannot be considered as the taxable event, and Rule 2(1)(d)(iv) cannot be applied retrospectively to services rendered before 16.08.2002.

3. The Tribunal, based on the facts and material available, decided the matter in accordance with the law. Since there was no legal infirmity in the Tribunal's order, the High Court dismissed the appeal, stating that there was no substantial question of law warranting interference.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that the taxable event for Service Tax is the rendering of taxable services, and the liability to pay Service Tax is on the recipient from the date specified in the relevant Rule, not on the date of invoice or payment.