2017 (9) TMI 223 - AT - Service Tax

Reverse charge mechanism - whether the appellant in the capacity of recipient of service is liable to pay service tax when the entire services were performed outside India? - Held that - The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 was enacted to identify which services could be taxable under Section 66A of the Finance Act, 1994 - Rule 3(ii) of the Rules, 2006 will not be applicable to the services in question, which were rendered outside India. Thus, service tax demand cannot be fastened on the appellant for such services provided from the foreign country - appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability on services provided from outside India.

Analysis:
The case involved an appeal against an order passed by the Commissioner (Appeals) regarding the service tax demand on the appellant for services provided from outside India. The appellant, engaged in the manufacture of Electrical Transformers, supplied transformers to both domestic and foreign buyers. The agreements with buyers included clauses for the appellant to undertake erection, commissioning, and installation work at the buyers' premises, with the work for exported transformers subcontracted to parties abroad. The Department initiated proceedings for service tax demand, holding the appellant liable under the reverse charge mechanism for services provided by individuals in a foreign country. The Tribunal was tasked with determining whether the appellant, as the recipient of services, was liable to pay service tax when the services were entirely performed outside India.

The Tribunal referred to the Taxation of Services Rules, 2006, which identified taxable services under Section 66A of the Finance Act, 1994. It was noted that the services of erection, commissioning, and installation were provided outside India and did not take place within India. The relevant Rule 3(ii) stated that service tax would be payable on a reverse charge basis only if such services were performed in India by a service provider from abroad. Therefore, the Tribunal concluded that Rule 3(ii) would not apply to services rendered outside India. The Tribunal relied on previous decisions, citing cases like Intas Pharmaceuticals Limited and K.G. Denim, to support its finding that service tax demand could not be imposed on the appellant for services provided from a foreign country.

After examining the case records and considering the arguments from both sides, the Tribunal found no merit in the impugned order. Consequently, the Tribunal set aside the order and allowed the appeal filed by the appellant. The judgment was pronounced in the open court on 21-2-2017.