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2018 (7) TMI 922 - AT - Service TaxReverse Charge Mechanism - Real Estate Agent Services - period involved is 2002, 2003 and 2004 - sub-clause iv in Clause D and sub-rule (1) of Rule 2 of the Service Tax Rules, 1994 - Held that - The matter is no longer res integra as issue has already been finalised by Hon ble Bombay High Court in their judgement in the case of Indian National Shipowners Association Vs. Union of India 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. The services received by the appellant from the service provider who are not based in India are not liable to service tax prior to 18/04/2006 and as since the entire period of demand is prior to the period of 18.4.2006, the order-in-appeal is devoid of any merit and same is set aside. Appeal allowed - decided in favor of appellant.
Issues:
1. Liability of service tax on services received from foreign service providers by an Indian entity. 2. Interpretation of provisions related to reverse charge mechanism under the Service Tax Rules, 1994. 3. Applicability of judgments by the Hon'ble Bombay High Court and the Hon'ble Supreme Court on the liability of service tax for services received from abroad. Analysis: Issue 1: Liability of service tax on services received from foreign service providers by an Indian entity The appellant, engaged in providing Residential Complex Construction Service, engaged foreign agencies for design consultancy and land escaping services. The Revenue contended that under sub-clause iv in Clause D and sub-rule (1) of Rule 2 of the Service Tax Rules, 1994, if services are provided by a person without a business establishment in India, the service recipient in India is liable to pay service tax on a reverse charge basis. A show cause notice was issued demanding service tax and penalties. The matter was adjudicated, and the Order-in-Original was upheld by the Commissioner (Appeal). However, the appellant contested this order. Issue 2: Interpretation of provisions related to reverse charge mechanism under the Service Tax Rules, 1994 Upon hearing both sides, the Tribunal found that the liability for service tax on services received from abroad by an Indian entity was settled by the Hon'ble Bombay High Court and the Hon'ble Supreme Court in the case of Indian National Shipowners Association Vs. Union of India. The judgments clarified that the service recipient in India is liable to pay service tax for services received from abroad only from 18/04/2006 after the enactment of Section 66A of the Finance Act, 1994. The Tribunal highlighted that before this enactment, there was no legal authority to levy service tax on Indian residents for services received from non-residents outside India. As the demand period in this case was prior to 18/04/2006, the Tribunal concluded that services received by the appellant from foreign service providers not based in India were not liable to service tax. Issue 3: Applicability of judgments by the Hon'ble Bombay High Court and the Hon'ble Supreme Court on the liability of service tax for services received from abroad The Tribunal relied on the judgments by the Hon'ble Bombay High Court and the Hon'ble Supreme Court, which emphasized that the enactment of Section 66A of the Finance Act, 1994, was pivotal in determining the liability of service tax for services received from abroad by Indian residents. The judgments clarified that prior to this enactment, the service tax liability did not extend to Indian recipients for services received from non-residents outside India. Therefore, the Tribunal set aside the order-in-appeal, holding it devoid of merit based on the legal precedents established by the higher courts. In conclusion, the Tribunal allowed the appeal based on the established legal principles regarding the liability of service tax on services received from foreign service providers by Indian entities before the enactment of Section 66A of the Finance Act, 1994.
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