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2016 (4) TMI 939 - AT - Service TaxDemand of service tax - Consulting Engineer service - Period involved is 1997-2002 - Appellant contended that the activity or the service provided by its company which is a foreign company did not get covered under the category of Consulting Engineer services inasmuch as during the relevant period the same was applicable to firms. Also the provisions to pay Service tax on reverse charge basis were introduced with effect from 18.4.2002 which were applicable from 18.4.06. Held that - As M/s. Houwa Kogyo Co. Ltd. is a foreign company located in Japan having no office or any establishment in India and in view of the clear fact that M/s. Bharat Seats Ltd. is only a recipient of the services and in that the period involved is prior to 18.4.2006, no tax liability would arise against M/s. Houwa Kogyo Co. Ltd. Japan. - Decided in favour of appellant with consequential relief
Issues:
1. Liability of a foreign company to pay service tax under the Finance Act, 1994. 2. Classification of services provided by a foreign company under the category of Consulting Engineer services. 3. Applicability of reverse charge mechanism for service tax payment by the recipient. 4. Jurisdiction of Indian authorities over a foreign service provider. Analysis: Issue 1: Liability of a foreign company to pay service tax under the Finance Act, 1994 The appeal involved a dispute regarding the liability of a foreign company, M/s. Houwa Kogyo Co. Ltd. Japan, to pay service tax under the Finance Act, 1994. The appellant contended that being a company situated in Japan, it was not liable to pay any service tax under the provisions of the Act, which extend to the whole of India except the State of Jammu and Kashmir. The Tribunal referred to relevant case law and held that as per Section 64 of the Finance Act 1994, the tax does not apply to a person or company situated outside India with no business establishment in India. Therefore, in the absence of any establishment in India, the foreign company was not liable to pay service tax. Issue 2: Classification of services provided by a foreign company under the category of Consulting Engineer services The dispute also revolved around the classification of services provided by the foreign company under the category of Consulting Engineer services. The appellant argued that the services did not fall under this category as interpreted by the Delhi High Court in a previous case. The Tribunal, considering the facts and legal precedents, concluded that the services provided by the foreign company did not attract service tax liability as Consulting Engineer services. The Tribunal cited case law and held that the service recipient, M/s. Bharat Seats Ltd., was not liable to pay service tax to the foreign service provider. Issue 3: Applicability of reverse charge mechanism for service tax payment by the recipient The appellant further contended that even if liable, the provisions for paying service tax on a reverse charge basis were introduced after the relevant period. The Tribunal examined the legal provisions and held that in the absence of a clear tax liability on the foreign company and considering the specific facts of the case, the reverse charge mechanism was not applicable for the period in question. Issue 4: Jurisdiction of Indian authorities over a foreign service provider Lastly, the Tribunal addressed the jurisdictional aspect, emphasizing that the foreign company, M/s. Houwa Kogyo Co. Ltd., located in Japan with no office or establishment in India, was not subject to the jurisdiction of Indian authorities for service tax purposes. The Tribunal relied on previous decisions and established that service tax could not be demanded from a foreign service provider without a presence in India. In conclusion, the Tribunal allowed the appeal in favor of the foreign company, M/s. Houwa Kogyo Co. Ltd., Japan, based on the grounds that it was not liable to pay service tax under the Finance Act, 1994, due to its location outside India and the absence of any establishment in India. The judgment provided clarity on the tax liability of foreign companies for services provided to Indian entities and highlighted the legal principles governing such transactions.
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