2019 (6) TMI 564 - AT - Service Tax

Reverse Charge Mechanism - Scope of Service tax act - non-resident parties - case of appellant is that non-resident parties are manufacturers and are not professionally qualified engineers/engineering firm and therefore, services received from them cannot be brought under the ambit of the Act - period of dispute is during the Financial Year 2005-06 - HELD THAT - In the present case, the period is of 2005-06. The demand has been made on the reverse charge basis on the services procured by the appellants from the persons located outside India, against payments made in foreign currencies. Section 66A ibid has been inserted in the Statute w.e.f. 18.04.2006 providing for levy of service tax on reverse charge basis on the services procured from outside India. In the terms of the settled law on the subject, no service tax can be demanded for the period upto 17.04.2006. The demand for service tax along with interest and penalties set aside - appeal allowed - decided in favor of appellant.

Issues:
1. Liability for service tax on reverse charge basis for services procured from abroad.
2. Interpretation of the term "service" under the Service Tax Rules, 1994.
3. Application of Section 66A of the Finance Act, 1994.
4. Imposition of penalties under various sections of the Finance Act, 1994.

Analysis:
1. The case involved the liability for payment of service tax on a reverse charge basis for services procured from abroad. The appellant, engaged in manufacturing machinery, entered into agreements with non-resident manufacturers for technical and marketing knowhow. The Department alleged that the payments made to these non-resident parties were technical fees liable to service tax. The Adjudicating Authority confirmed the demand, but the Tribunal noted that the demand was for the financial year 2005-06, before the introduction of Section 66A of the Finance Act, 1994. Citing settled law, the Tribunal set aside the demand for service tax, interest, and penalties, as no service tax could be demanded for the period before 18.04.2006.

2. The appellant argued that the services received from non-resident parties were not professional services falling under the ambit of the Act. They contended that they received technical and marketing knowhow for manufacturing and marketing machinery, not services. The Department, however, held the appellant liable for service tax under the reverse charge mechanism. The Tribunal analyzed the nature of the services received and the applicable rules, ultimately ruling in favor of the appellant based on the absence of service tax liability before the introduction of Section 66A.

3. The Tribunal addressed the application of Section 66A of the Finance Act, 1994, which introduced the levy of service tax on a reverse charge basis for services procured from outside India. Noting that this section was effective from 18.04.2006, the Tribunal emphasized that no service tax could be demanded for the period preceding this date. This statutory provision played a crucial role in determining the liability for service tax in the case, leading to the decision to set aside the demand and associated penalties.

4. The Adjudicating Authority had imposed various penalties under different sections of the Finance Act, 1994, including late payment penalties and mandatory penalties. However, the Tribunal, after considering the legal provisions and the specific circumstances of the case, found in favor of the appellant and allowed the appeal. The Tribunal's decision to set aside the demand for service tax also impacted the imposition of penalties, resulting in a favorable outcome for the appellant.

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