2016 (7) TMI 157 - AT - Service Tax

Levy of service tax on import of services under reverse charge mechanism - for the period August 2002 to December, 2004 - Held that - This issue was settled by Bombay High Court judgement in the case of Indian National Ship-Owners Association vs. UOI 2008 (12) TMI 41 - BOMBAY HIGH COURT . - In view of the above Service Tax on Reverse Charge Mechanism for the services received from abroad cannot be charged for the period prior to 18.04.2006. - Decided in favor of assessee.

Summary

Issues: Appeal against Order-in-Original confirming demand and imposing penalty under Finance Act, 1994; Appeal by Revenue for enhancement of penalty; Service Tax liability on royalty paid under Reverse Charge Mechanism.

Analysis:
1. Appeal against Order-in-Original: The Appellant filed Appeal No.56/2007 challenging the Order-in-Original dated 04.06.2007 by the Commissioner of Central Excise, Haldia Commissionerate, Kolkata. The order confirmed a demand of &8377; 3,57,98,683/- against the Appellant under Section 73 of the Finance Act, 1994, along with interest. Additionally, a penalty of &8377; 3.50 Crore was imposed under Sections 76 and 78 of the Finance Act, 1994. The Appellant argued that the payment of royalty to M/s.Mitsubisi Chemical Corporation, Japan should not be considered as Consulting Engineers Services under Section 65(31) of the Finance Act, 1994. The Appellant contended that Service Tax on royalty was only payable after the introduction of Section 66A of the Finance Act, 1994, and not before 18.04.2006.

2. Appeal by Revenue for Penalty Enhancement: Appeal No.60/2007 was filed by the Revenue against the same Order-in-Original dated 04.06.2007, seeking enhancement of the penalty imposed by the Adjudicating authority. The Revenue argued that the penalty was not in conformity with the provisions of Sections 76 and 78 of the Finance Act, 1994. The Ld.AR representing the Revenue highlighted that the Appellant was receiving services from abroad and was issued a show cause notice to discharge duty liability under Reverse Charge Mechanism. Reference was made to a CBEC Circular indicating that Service Tax liability under Reverse Charge Mechanism was applicable only from 18.04.2006 onwards.

3. Service Tax Liability on Royalty under Reverse Charge Mechanism: The key issue in the proceedings was whether Service Tax on the royalty paid by the Appellant to M/s.Mitsubisi Chemical Corporation, Japan would attract liability under Reverse Charge Mechanism for the period August 2002 to December 2004. The Tribunal referred to a judgment by the Bombay High Court in the case of Indian National Ship-Owners Association vs. UOI [2009 (13) STR 235(Bom.)], which clarified the applicability of Service Tax under Reverse Charge Mechanism. The Tribunal also noted a Review Petition filed by the Revenue in another case, which was dismissed by the Apex Court. Based on these precedents, it was established that Service Tax on Reverse Charge Mechanism for services received from abroad could not be levied for the period before 18.04.2006. Consequently, the Appeal filed by the Appellant was allowed, while the Appeal by the Revenue for penalty enhancement was dismissed.