2018 (2) TMI 685 - AT - Service Tax

Business Auxiliary Service - commission paid to foreign based commission agents, who were placing export order with them - Held that - rules cannot be made to make service recipient liable to pay service tax, when Finance Act, 1994 makes a service provider liable to pay the same - the said SCN did not invoke provisions of Section 66A for demand of said service tax - SCN not valid - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Interpretation of Service Tax Rules, 1994 regarding liability to pay service tax on commission paid to foreign agents
- Applicability of Section 66A of the Finance Act, 1994
- Admissibility of invoking Rule 2(1)(d) of Service Tax Rules, 1994 in the show cause notice
- Legal precedent set by the Hon'ble High Court of Bombay in the case of Indian National Ship Owners Association Vs Union of India

Analysis:

1. Interpretation of Service Tax Rules, 1994: The appeals arose from a common Order-in-Original passed by the Commissioner of Central Excise & Service Tax, Kanpur, concerning the liability of an appellant engaged in manufacturing and exporting goods to pay service tax on commission paid to foreign-based agents. The Revenue contended that such services fell under 'Business Auxiliary Service,' making the recipient liable to pay service tax. The appellant argued that a ruling by the Hon'ble High Court of Bombay established that rules cannot impose liability on the service recipient when the Finance Act, 1994 holds the service provider accountable. The Original Authority upheld a demand for service tax on commissions paid during a specific period. However, the Tribunal found the show cause notice lacking force of law as it did not invoke Section 66A for service tax demand, thereby allowing the appeal filed by the appellant.

2. Applicability of Section 66A of the Finance Act, 1994: The Tribunal's analysis focused on the absence of invoking Section 66A in the show cause notice, which was crucial for demanding service tax. By not invoking this section and relying solely on Rule 2(1)(d) of Service Tax Rules, 1994, the Tribunal deemed the notice legally insufficient. The decision highlighted the importance of correctly invoking relevant sections of the Finance Act to establish the basis for service tax demands.

3. Legal Precedent from the Hon'ble High Court of Bombay: The appellant cited a significant ruling by the Hon'ble High Court of Bombay in the case of Indian National Ship Owners Association Vs Union of India, which influenced the interpretation of liability for service tax. The ruling emphasized that rules cannot impose liability on the service recipient when the Finance Act, 1994 mandates the service provider to pay the tax. This legal precedent played a crucial role in the Tribunal's decision to allow the appeal filed by the appellant and reject the appeal filed by the Revenue.

In conclusion, the Tribunal's judgment centered on the correct interpretation of Service Tax Rules, 1994, the necessity of invoking relevant sections of the Finance Act for service tax demands, and the legal precedent established by the Hon'ble High Court of Bombay. The decision favored the appellant based on these considerations, highlighting the importance of legal clarity and adherence to established precedents in tax matters.