2018 (1) TMI 1213 - AT - Service Tax

Reverse Charge Mechanism - appellants had availed services of Underwriters - case of Revenue is that Since the services have been received by the appellants and from underwriters located outside India, the appellants are very much liable for tax liability - Held that - the scope and extent of service tax chargeability on reverse charge basis for different services has been treated differently only in sub-rule (iii) of Rule 3 of the Rules. For Underwriting Services to be taxed at the hands of the person located in India, the services definitely have to be performed fully or partly in India. This is certainly not the case here. In fact, the Underwriting Agreement dated 18-06-2007 makes it clear that the ADS offering is not applicable for sale in India, but only to other select jurisdictions like the United States of America, Canada, Japan etc. - the impugned services availed of by the appellant not having been performed partly or wholly in India, will not bring forth the requirement of taxability on the appellant on reverse charge basis under Rule 66A of the Finance Act, 1994 read with the Taxation of Services (Provided from outside India Received in India) Rules 2006. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Taxability of services received from foreign underwriters by the appellant.
2. Interpretation of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.
3. Application of reverse charge mechanism under Section 66A of the Finance Act, 1994.
4. Determination of service tax liability on underwriting services.
5. Consideration of performance of services in India for taxability under reverse charge basis.

Analysis:

Issue 1: Taxability of services received from foreign underwriters by the appellant
The case involved the appellant, a manufacturer providing various taxable services, availing underwriting services from foreign entities. The department alleged that the payments made to foreign underwriters constituted taxable income under the category of Underwriter's Service, leading to a demand for service tax liability. The appellant contested this claim, arguing that tax liability should only arise for services performed in India.

Issue 2: Interpretation of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006
The Tribunal examined the provisions of the Taxation of Services Rules, 2006, particularly Rule 3(ii), which specifies that services provided from outside India and received in India are taxable only if they are performed in India. The Tribunal emphasized the importance of performance in India to attract tax liability under this rule, highlighting the distinction between services performed in India and those received in India.

Issue 3: Application of reverse charge mechanism under Section 66A of the Finance Act, 1994
The appellant's argument relied on Section 66A of the Finance Act, 1994, which introduced the reverse charge mechanism for service tax liability. The Tribunal considered the applicability of this section in conjunction with the Taxation of Services Rules, emphasizing that services received in India are taxable under these provisions, particularly when services are performed in India.

Issue 4: Determination of service tax liability on underwriting services
The Tribunal analyzed the nature of underwriting services and the contractual agreements between the appellant and foreign underwriters. It was established that underwriting services, if performed outside India, do not attract tax liability on the appellant under the reverse charge mechanism. The Tribunal referred to a previous case law to support this interpretation and concluded that underwriting services provided outside India do not warrant tax imposition on the appellant.

Issue 5: Consideration of performance of services in India for taxability under reverse charge basis
The Tribunal emphasized the requirement for services to be performed at least partly in India to trigger tax liability under the reverse charge mechanism. It was noted that the underwriting services availed by the appellant were not performed in India, as evidenced by the underwriting agreement's jurisdictional restrictions. Therefore, the Tribunal held that the appellant was not liable for service tax under reverse charge basis for the underwriting services received from foreign entities.

In conclusion, the Tribunal set aside the impugned order, ruling in favor of the appellant and allowing the appeal with consequential benefits as per the law.