2018 (4) TMI 776 - AT - Service Tax

Import of services - Place of provision of services - Reverse charge mechanism - place of provision of service - Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 - appellant have received Business Auxiliary Service(BAS) and Technical Testing and Analysis Service (TTA) from foreign based firms during the period from 25.5.2009 to 22.6.2011 and 20.5.2010 to 30.3.2012 respectively - non-payment of service tax - penalty. Held that - the technical testing analysis service covered under sub-clause (zzh) received from outside India is taxable provided such service is partly performed in India - In the facts of the present case, the testing of spacer damper was wholly performed outside India in the foreign country by a foreign based testing agency. No part of the testing was provided in India for the reason that the testing agency is located outside India. Even though the goods on which test was conducted and certificate issued therefore were received by the recipient in India but the fact remains that the service of Technical Testing and analysis was only performed in abroad, no part of it was performed in India. Therefore the technical testing and analysis service on the reverse charge basis is not taxable in terms of Rule 3(iii) of Rules 2006 - Demand of Service Tax in respect of Technical Testing and Analysis Service upto the period of 31.3.2011 is set aside. However the service tax demand on this service from 1.4.2011 onwards is upheld. As regard Business Auxiliary Service which was provided by foreign based company to the appellant and received by the appellant in India, the same is liable to service tax - demand upheld. Penalty - Held that - the grave interpretation Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, was involved and the various litigation has been taken place on this issue - penalty set aside. Appeal allowed in part.

Summary

Issues:
- Taxability of Technical Testing and Analysis Service received from foreign firms
- Applicability of Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006
- Interpretation of reverse charge mechanism for Business Auxiliary Service
- Imposition of penalty under Section 77 & 78

Analysis:

1. Taxability of Technical Testing and Analysis Service: The appellant received Technical Testing and Analysis Service from foreign firms, and the issue was whether this service was taxable under the reverse charge mechanism. The appellant argued that the service was performed wholly outside India and, therefore, not taxable in India. The Tribunal analyzed Rule 3(iii) of the Rules 2006, which states that if a taxable service is partly performed in India, it shall be treated as performed in India. However, in this case, the testing was wholly performed outside India, and even though the goods were received in India, the service itself was not performed in India. The Tribunal concluded that the Technical Testing and Analysis Service on a reverse charge basis was not taxable as per Rule 3(iii) of the Rules 2006 until 1.4.2011. Post this date, the service became chargeable to service tax, as it was received in India for use in relation to business or commerce.

2. Applicability of Rule 3(iii) of Rules 2006: The Tribunal examined the implications of the omission of sub-clause (zzh) in Rule 3(iii) of the Rules 2006 from 1.4.2011. Even after this omission, the service was found to be liable to tax if received by a recipient in India for business or commerce. The Tribunal upheld the demand for Technical Testing and Analysis Service from 1.4.2011 onwards, as it was received in India and used for business purposes.

3. Interpretation of reverse charge mechanism for Business Auxiliary Service: The appellant did not contest the demand for Business Auxiliary Service tax. The Tribunal upheld the demand for this service, as it was provided by a foreign-based company and received in India, making it liable for service tax.

4. Imposition of penalty under Section 77 & 78: The Tribunal considered the penalty issue, noting that there was a grave interpretation of the Taxation of Services Rules involved. Due to the various litigations on this matter, the issue was not free from doubt. Additionally, since the appellant, a manufacturer, could avail cenvat credit for the service tax paid on reverse charge basis, there was no malafide intention in non-payment of service tax. Therefore, the penalties imposed under Section 77 & 78 were set aside invoking Section 80 of the Act.

In conclusion, the Tribunal partly allowed the appeal by upholding the demand for Business Auxiliary Service tax, setting aside the demand for Technical Testing and Analysis Service until 31.3.2011, and upholding the demand for this service from 1.4.2011 onwards. The penalties under Section 77 & 78 were set aside by invoking Section 80 of the Act.