2006 (1) TMI 52 - AT - Service Tax

Appellants receiving consulting engineer services from their foreign collaborators - In agreement of assessee and its foreign collaborator there is no explicit direction or authorization for payment of service tax by assessee - As per proviso 2 to rule 6 there is no binding on the service recipient to act on behalf of his foreign service provider unless authorized by the latter liability not arise on payments made prior to the amendment of Service Tax Rules 1994 i.e. prior to 16.8.02

Summary

Issues:
1. Liability of service tax between April 1999 and August 2002.
2. Interpretation of Service Tax Rules 1994 post-amendment.
3. Applicability of tax liability on payments made to foreign service providers.
4. Liability for Gajraula premises.
5. Authorization for payment of service tax on behalf of service provider.
6. Challenge to the decision of the Commissioner (Appeals).

Analysis:

Issue 1: Liability of service tax between April 1999 and August 2002
The case involved a dispute regarding the liability of service tax between April 1999 and August 2002. The Commissioner (Appeals) confirmed the liability of service tax, which was challenged by the appellants. The Commissioner held that the appellants were liable to pay service tax during the period prior to the amendment due to an agreement that imposed the onus on them to bear all taxes and levies in India.

Issue 2: Interpretation of Service Tax Rules 1994 post-amendment
The Service Tax Rules 1994 underwent significant amendments on 16th August 2002. The introduction of a new clause shifted the burden of tax liability from foreign service providers to local service recipients. The appellants contended that the amendments should apply prospectively and not retrospectively.

Issue 3: Applicability of tax liability on payments made to foreign service providers
The show cause notice alleged that the appellants were receiving services from foreign collaborators and demanded payment of service tax. The Assistant Commissioner reduced the demand, but the Commissioner (Appeals) upheld the liability. The appellants argued that the agreement did not authorize them to pay service tax on behalf of the service provider.

Issue 4: Liability for Gajraula premises
The Commissioner (Appeals) agreed with the appellants that no demand could be made for their Gajraula factory as no services were rendered there. The Commissioner suggested that the liability should be at their Noida location due to a centralized accounting system.

Issue 5: Authorization for payment of service tax on behalf of service provider
The appellants challenged the Commissioner's interpretation of the agreement, arguing that it did not authorize them to pay service tax on behalf of the service provider. The Tribunal disagreed with the Commissioner's view, stating that the agreement did not explicitly authorize payment of service tax on behalf of the service provider.

Issue 6: Challenge to the decision of the Commissioner (Appeals)
The Tribunal set aside the order of the Commissioner (Appeals) on the limited extent of the liability issue, partially allowing the appeal. The decision emphasized the need for a proper legal basis for determining tax liability and the importance of authorization in tax matters.