2008 (7) TMI 299 - AT - Service Tax

Services received in the category of Business Auxiliary Service (BAS) from persons based abroad during January, 2005 to June, 2005 Tribunal s decision in the case of Bhandari Hosiery Exports Ltd. that the recipient of service which was provided outside India are made liable of service tax only after introduction of Section 66A, is applicable - in the present case demand is prior to the introduction of Section 66A of the Finance Act prima facie case in favour of appellant stay granted

Summary

Issues:
1. Demand of service tax on services received from abroad under 'Business Auxiliary Service' category.
2. Revision of order by Commissioner under Section 84 of the Finance Act, 1994.
3. Applicability of Section 66A of the Finance Act to services rendered abroad.
4. Imposition of penalties under Sections 76 and 77 of the Act.

Analysis:
1. The appellants received services categorized as 'Business Auxiliary Service' (BAS) from agents based abroad who canvassed orders for the appellant's exported egg products. The original authority initially dropped the proposal to demand service tax for the period from January 2005 to June 2005. However, the Commissioner revised this decision and demanded an amount of Rs. 3,45,865/- as service tax and education cess under Rule 6 of the Service Tax Rules, 1994, along with interest and penalties under Sections 76 and 77 of the Act.

2. The Commissioner's revision of the original authority's decision was based on Section 84 of the Finance Act, 1994. The appellants, through their consultant, argued that the demand and penalties were not sustainable in law as the service rendered abroad to Indian assessees was made taxable by Section 66A of the Act, which came into effect on 18-4-06. They relied on a Tribunal decision to support their argument that the service tax demand was not valid in this case.

3. The argument presented by the appellants was supported by the Tribunal's observation in a previous case where it was held that prior to the introduction of Section 66A of the Finance Act, there was no charging section under the Act for services provided outside India. The Tribunal set aside the demand in that case, emphasizing that the introduction of Section 66A made the recipient of services provided outside India liable for service tax. Therefore, in the present case, as the demand was for a period before the introduction of Section 66A, the demand was deemed unsustainable, leading to the waiver of pre-deposit and stay of recovery of dues until the appeal's final disposal.

4. The Commissioner's order imposing penalties under Sections 76 and 77 of the Act was not upheld due to the lack of sustainability of the service tax demand itself. The Tribunal found merit in the appellants' argument and granted relief by setting aside the demand and allowing the waiver of pre-deposit and stay of recovery until the appeal's final disposal.