2017 (10) TMI 514 - HC - Service Tax

Taxability - outstanding dues - whether the amount shown as outstanding in the books of accounts of the Assessee as on 10th May 2008 would be amenable to service tax by virtue of the amendments? - amendment made in Explanation (c) to Section 67 of the FA 1994 - an explanation was added to sub-rule (1) under Rule 6 of the STR, 1994 by N/N. 19/2008/ST dated 10th May 2008 - The CESTAT has, in the impugned order, held that the amendment was made to Section 67 of the FA 1994 as well as Rule 6 of the ST Rules only with effect from 10th May 2008 and not retrospectively. It was noted that the explanation to Rule 6 being prejudicial to the interest of the AE would, therefore, not apply retrospectively. Held that - As a consequence of the above amendments, service tax was required to be paid on taxable service provided to AEs even where the consideration of such tax and services had not actually been received but had been shown in books of accounts as outstanding . Although the intention behind the insertion of the above Explanation to Rule 6 of ST Rules corresponding to the amended Explanation (c) to Section 67 of the FA was to bring amounts receivable from the AEs of the Assessees to tax, the intention was not to make it retrospective, i.e. to tax the transactions that have taken place prior to 10th May 2008. Admittedly, the amount shown outstanding in the books of accounts of the Assessee pertained to the transactions that had taken place prior to 10th May 2008. As per Rule 6, it is the date when the amount is credited/debited that is relevant and not the fact that the amount remains in the books. Any contrary interpretation would result in the provision being made retrospective, which was not the intention. The Court is satisfied that no error has been committed by the CESTAT in answering the issue in favour of the Assessee, viz., that the aforementioned amendments to the FA 1994 as well as the ST Rules cannot be made retrospective - appeal dismissed - decided against Revenue.

Summary

Issues:
1. Delay in filing
2. Appeal by Service Tax Department against CESTAT order
3. Interpretation of amendments to Finance Act and Service Tax Rules
4. Retrospective application of the amendments

Delay in filing: The judgment condoned the delay in filing for reasons explained in the application, allowing it.

Appeal by Service Tax Department against CESTAT order: The appeal was made by the Service Tax Department against an order passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT). The Respondent-Assessee, a subsidiary of a US corporation, provided management services to its Associated Enterprise (AE) in India. The Department issued a show cause notice for service tax demand, which was confirmed by an adjudication order. The Assessee appealed to the Commissioner (Appeals) and then to CESTAT, which allowed the appeal, setting aside the orders.

Interpretation of amendments to Finance Act and Service Tax Rules: The amendments required service tax to be paid on services provided to AEs, even if the payment had not been received but was shown as receivable in the books of accounts. The Department argued that the amendments clarified the existing position, making the Assessee liable for service tax.

Retrospective application of the amendments: The Court held that the amendments were not intended to be retrospective, as they came into effect from a specific date. The explanation to Rule 6 of the Service Tax Rules was found to be not clarificatory but prospective. The Court cited a Supreme Court decision to support the view that the intention was not to tax transactions prior to the effective date of the amendments. Therefore, the Court upheld CESTAT's decision in favor of the Assessee, concluding that no substantial question of law arose. The appeal was dismissed without costs.