2017 (10) TMI 904 - HC - Service Tax

Import of services - Explanation to Sec. 65(105) of the Finance Act, 1994, read with amended Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, coming into effect from 16-6-2005 is ultra vires Sections 64, 65, 66, 67 and 68 of the Finance Act, 1994 - Held that - the issue is squarely covered by the decision in the case of POLYSPIN EXPORTS LTD. Versus UNION OF INDIA 2010 (11) TMI 187 - MADRAS HIGH COURT , where it was held that It is admitted that after the introduction of Section 66A the explanation to Section 65(105) was also deleted. Hence, the show cause notice issued, on the basis of explanation Section 65(105) of the Finance Act, 1994, read with amended Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 are not valid in law and liable to be quashed - petition allowed.

Summary

Issues involved:
Interpretation of Section 66A of the Finance Act, 1994 and its implications on the levy of service tax on recipients of taxable services prior to its introduction.

Analysis:
The judgment in question dealt with the interpretation and application of Section 66A of the Finance Act, 1994, and its impact on the levy of service tax on recipients of taxable services before and after its introduction. The issue revolved around the legal authority of tax authorities to impose service tax on individuals or entities in India receiving services from non-residents or entities outside India. The judgment referred to a previous decision by the Bombay High Court, which was subsequently upheld by the Supreme Court, establishing that prior to the enactment of Section 66A, there was no legal basis for levying service tax on Indian recipients of services from abroad. The introduction of Section 66A empowered tax authorities to tax such services received by Indian residents, deeming them as service providers. Consequently, the judgment concluded that service tax could not be imposed before 17-4-2006 and that any demands for service tax prior to this date were invalid. The court held that the authorities lacked the power to levy service tax before the introduction of Section 66A and invalidated show cause notices issued based on the previous provisions. The judgment highlighted the significance of Section 66A in granting legal authority to tax authorities for levying service tax on recipients of taxable services from non-residents, emphasizing that only after its enactment could such taxation be deemed valid.

Conclusion:
In conclusion, the judgment clarified the legal framework surrounding the imposition of service tax on recipients of taxable services in India from non-residents or entities outside India. By referencing the provisions of Section 66A of the Finance Act, 1994, and the corresponding amendments, the court emphasized the necessity of this section in granting the legal authority to tax such services. The decision underscored that prior to the introduction of Section 66A, there was no statutory basis for levying service tax on Indian recipients of services from abroad. Therefore, any attempts to demand service tax before 17-4-2006 were deemed unlawful and liable to be quashed. The judgment upheld the principle that the legal authority to tax such services only arose with the enactment of Section 66A, as established in the previous rulings of the Bombay High Court and subsequently endorsed by the Supreme Court.