2008 (11) TMI 116 - AT - Service Tax

Taxability of offshore services - withdrawal of Circular No.36/4/2001 dated 8.10.01 which held that service provided beyond the territorial waters would not attract service tax - circular will be relevant till the amendment brought out in service tax laws by insertion of Section 66A w.e.f. 18-4-2006 - therefore, the appellant s contention that offshore services are liable to tax only w.e.f. 18.4.06, is acceptable - decision in the case of Foster Wheeler Energy Ltd. applicable appeal allowed

Issues Involved:
1. Taxability of services rendered by overseas agents.
2. Applicability of Section 66A of the Finance Act, 1994.
3. Relevance of Circular No. 36/4/2001 dated 8.10.2001.
4. Impact of the Larger Bench decision in Hindustan Zinc Ltd.
5. Limitation period for issuing a show cause notice.

Detailed Analysis:

1. Taxability of Services Rendered by Overseas Agents:
The appellant, a manufacturer of yarn, entered into agreements with overseas agents to solicit orders from various countries. These agents were paid a commission based on the value of goods shipped. The original authority classified these services as "Business Auxiliary Service" under Section 65(105)(zzb) and confirmed a demand for service tax for the period 9.7.04 to 15.6.05. The Commissioner (Appeals) upheld this order but reduced the penalties under Sections 76 and 77.

2. Applicability of Section 66A of the Finance Act, 1994:
The appellant argued that services rendered by overseas agents outside India should not attract service tax. They cited the Finance Act, 2006, which inserted Section 66A effective from 18.4.06, enabling the taxation of offshore services at the hands of the recipients in India. The Tribunal noted that the Larger Bench in Hindustan Zinc Ltd. only addressed the date from which recipients would be liable to pay tax and not the taxability of the services themselves.

3. Relevance of Circular No. 36/4/2001 dated 8.10.2001:
The appellant relied on Circular No. 36/4/2001, which clarified that services provided beyond territorial waters would not attract service tax. This circular was in force until 17.4.06. The Tribunal inferred that prior to the insertion of Section 66A on 18.4.06, no tax was leviable on such services, as supported by the Tribunal's decision in Foster Wheeler Energy Ltd.

4. Impact of the Larger Bench Decision in Hindustan Zinc Ltd.:
The Tribunal examined the Larger Bench decision in Hindustan Zinc Ltd., which dealt with the liability of recipients to pay tax from 1.1.2005. The Tribunal concluded that this decision did not automatically imply that service tax was chargeable on recipients before this date. The Tribunal reiterated that the insertion of Section 66A and the withdrawal of Circular No. 36/4/2001 indicated that offshore services were not taxable before 18.4.06.

5. Limitation Period for Issuing a Show Cause Notice:
The appellant alternatively argued that there was no suppression of facts, and thus, the demand was time-barred. However, the Tribunal did not address the issue of limitation as it allowed the appeal on merits, following the precedent set in Foster Wheeler Energy Ltd.

Conclusion:
The Tribunal held that the services rendered by overseas agents were offshore services and not taxable before 18.4.06. Consequently, the appeal was allowed with consequential relief, and the Tribunal did not delve into the issue of limitation. The decision was dictated and pronounced in open court.

← Previous Next →