2008 (11) TMI 124 - AT - Service Tax

Consultancy charges paid to foreign company in 2002-03 for supervision of erection & commissioning of plant and equipment - issue has been settled by Larger Bench of Tribunal in favour of the assessee in case of Hindustan Zinc Ltd. v. CCE where it was held that as a recipient of the consulting engineer service from outside India, the appellant was not liable to pay service tax prior to 1-1-2005 in view of this decision, Commissioner is justified in setting aside the demand

Summary

Issues:
- Appeal against Order-in-Appeal No. 07/ST/RPR-I/2007
- Liability to pay tax on consultancy charges paid in foreign currency
- Interpretation of rule 2(1)(d)(iv) of Service Tax Rules
- Precedent set by Hindustan Zinc Ltd. case
- Application of Notification No. 36/2004 and Notification No. 12/2002

Analysis:
The appeal was filed against Order-in-Appeal No. 07/ST/RPR-I/2007, where the Adjudication order was set aside by the Commissioner (Appeals). The issue revolved around the liability to pay tax on consultancy charges paid in foreign currency to a foreign company for supervision of erection and commissioning of plant and equipment. The Revenue contended that as per rule 2(1)(d)(iv) of Service Tax Rules inserted by Notification No.12/2002-ST, the respondent was liable to pay tax on the amount paid to the foreign company. However, the learned advocate cited the decision of the Larger Bench in the case of Hindustan Zinc Ltd., which established that the recipient of a taxable service provided by a non-resident or from outside India, without an office in India, could not be held liable for paying service tax prior to 1-1-2003, despite the amendment in rule 2(1)(d) of the Service Tax Rules under Notification No. 12/2002.

The Larger Bench Decision highlighted that the recipient of a 'consulting engineer' service from outside India was not liable to pay service tax prior to 1-1-2005, as specified under Notification No. 36/2004. This decision was in line with previous cases such as Aditya Cement v. CCE and Ispat Industries Ltd. v. CCE, where similar conclusions were reached. In light of this precedent, the Tribunal found no infirmity in the order of the Commissioner (Appeals) and consequently rejected the appeal filed by the Revenue.

In conclusion, the judgment reaffirmed the principle established by the Larger Bench regarding the liability of recipients of taxable services provided by non-residents or entities from outside India without offices in India. The decision provided clarity on the application of relevant notifications and rules, ultimately leading to the dismissal of the Revenue's appeal against the Order-in-Appeal.