2018 (2) TMI 79 - AT - Service Tax

Liability of service tax - commission/amounts paid to foreign agent - reverse charge mechanism - 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 commission/amounts paid to foreign agent 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. Appeal dismissed - decided against Revenue.

Issues:
1. Demand of service tax on royalty paid to foreign collaborators under Intellectual Property Right (IPR) services.
2. Interpretation of Rule 2(1)(d)(iv) of Service Tax Rules, 1994 regarding liability to pay service tax on services provided by a person from outside India.
3. Applicability of reverse charge mechanism on commission/amounts paid to foreign agents.
4. Legal correctness of the Commissioner (Appeals) decision regarding service tax liability on Intellectual Property Right services received from foreign service providers.

Analysis:

1. The appeal before the Tribunal challenged the order passed by the Commissioner of Central Excise (Appeals) demanding and recovering service tax of &8377;40,42,465/- from the appellants for royalty paid to foreign collaborators under Intellectual Property Right (IPR) services. The Revenue initiated proceedings against the appellants based on certain enquiries, which led to the imposition of service tax, interest, and penalties by the adjudicating authority. However, the Commissioner (Appeals) set aside this order and ruled in favor of the appellants, prompting the Revenue to appeal before the Tribunal.

2. The Revenue argued that as per Rule 2(1)(d)(iv) of Service Tax Rules, 1994, the recipient is liable to pay service tax on taxable services received from a person outside India. The Revenue contended that the Commissioner (Appeals) erred in finding the appellants not liable to pay service tax on Intellectual Property Right services received from foreign service providers. The Revenue sought the restoration of the adjudicating authority's order.

3. The Tribunal noted that the period in question was before the introduction of Section 66A in the Finance Act, 1994, on 18.4.2006. Referring to the judgment in Indian National Shipowners Association case, the Tribunal clarified that the liability to pay service tax under the reverse charge mechanism on commission/amounts paid to foreign agents was settled in favor of the assessees. Citing the Supreme Court's decision upholding the aforementioned judgment, the Tribunal found no merit in the Revenue's appeal and dismissed it accordingly.

4. In conclusion, the Tribunal upheld the Commissioner (Appeals) decision in favor of the appellants, emphasizing the settled legal position regarding the liability to pay service tax on services provided by foreign collaborators under Intellectual Property Right services. The Tribunal's ruling was based on the established interpretation of the law and relevant judicial precedents, leading to the dismissal of the Revenue's appeal.

This detailed analysis of the judgment addresses the issues involved comprehensively, highlighting the legal arguments, precedents, and the final decision rendered by the Tribunal.

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