2017 (11) TMI 1575 - AT - Service Tax

Reverse Charge Mechanism - royalty - whether the appellant is liable to pay service tax under the heading Intellectual Property Service for the services rendered by their foreign counterpart M/s. Delphi Technologies Inc. USA? - Held that - the period involved is prior to 18.4.2006 on which date Section 66A came to be introduced in the Finance Act, 1994 - The issue whether the assesse is liable to pay service tax under reverse charge mechanism on royalty paid to foreign counterpart stands settled in favour of the assessees in the judgment of Indian National Shipowners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT , where it was held that Before insertion of section 66A with effect from 18-4-2006, there was no authority to levy service tax on Import of service. Explanation below section 65(105) did not give any authority to levy service tax on import of services - appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether the appellant is liable to pay service tax under the heading Intellectual Property Service for services rendered by their foreign counterpart M/s. Delphi Technologies Inc. USA.

Analysis:

The judgment pertains to a case where the appellants, manufacturers and suppliers of fuel injection pumps, received intellectual property services from a foreign company, M/s. Delphi Technologies Inc. USA, for a specific period. The appellant paid a royalty of 3% of the net selling price of fuel injection pumps to the foreign company. A show cause notice was issued for the recovery of service tax under reverse charge mechanism for the mentioned period. The original authority confirmed the demand, which was upheld by the Commissioner (Appeals), leading to this appeal.

Upon hearing both sides and examining the records, the Tribunal noted that the period in question was prior to the introduction of Section 66A in the Finance Act, 1994, on 18.4.2006. Referring to the judgment in the case of Indian National Shipowners Association, which was upheld by the Honorable Supreme Court, the Tribunal concluded that the issue of liability to pay service tax under reverse charge mechanism on royalty paid to a foreign counterpart was settled in favor of the assessees.

Based on the precedent and legal interpretation, the Tribunal found that the impugned order was not sustainable. Consequently, the appeal was allowed, and the impugned order was set aside, with any consequential relief to be provided as necessary. The operative portion of the order was pronounced in open court, bringing the matter to a close in favor of the appellant.