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2023 (6) TMI 1245 - AT - Service TaxLevy of service tax - alleged consulting engineers services on the Royalty payments made to the foreign company by the appellant - reverse charge mechanism - HELD THAT - The demand of Service Tax prior to 18.04.2006 is not sustainable as the charging Section 66A of the Finance Act, 1994 for levy of Service Tax on the services provided to the foreign service provider on reverse charge basis was enacted only with effect from 18.04.2006. In view of the ratio laid down in the case of INDIAN NATIONAL SHIPOWNERS ASSOCIATION VERSUS UNION OF INDIA 2008 (12) TMI 41 - BOMBAY HIGH COURT , which has been upheld by the Hon ble Supreme Court in UNION OF INDIA VERSUS INDIAN NATIONAL SHIPOWNERS ASSOCIATION 2009 (12) TMI 850 - SC ORDER , the appellant cannot be fastened with Service Tax liability for the Royalty payments made under consulting engineer service prior to 18.04.2006. The second proviso to sub-rule (1) to the Rule 6 clearly provides that notwithstanding the time of receipt of payment towards value of service, no Service Tax shall be payable for the part or whole of the value of services which is attributable to services provided during the period when such services were not taxable. As such, the impugned order holding that the taxable event is not the provision of the service but the date on which the value of taxable service is paid, is not legally maintainable. Hence, the demand of tax confirmed in this regard is not sustainable. The appellant was issued with a Show Cause Notice C.No.IV/16/172/2003-STC dated 14.10.2003 for the period from 1997 to 2001 demanding appropriate Service Tax on Royalty paid which was dropped vide Order-in-Appeal No. 109/2004 dated 08.09.2004, indicating that the Department was well aware of the activities of the appellant such as payment of Royalties to foreign collaborators under consulting engineer service. The demand of Service Tax on the appellant for the normal period is confirmed - penalties imposed are also set aside - appeal allowed in part.
Issues Involved:
1. Liability to pay Service Tax on Royalty payments under "consulting engineers" services. 2. Applicability of Section 66A of the Finance Act, 1994. 3. Validity of demand for periods prior to 18.04.2006. 4. Invocation of the extended period of limitation. 5. Revenue neutrality and eligibility for input service credit. Summary: 1. Liability to pay Service Tax on Royalty Payments: The appellant had entered into an agreement with a foreign company for the use of know-how, formula, and trademarks, paying a Royalty fee. The Revenue argued that these payments fell under "consulting engineers" services, making the appellant liable for Service Tax. The Show Cause Notice dated 14.10.2003 proposed to demand Service Tax for the period from 1997 to 2001. 2. Applicability of Section 66A of the Finance Act, 1994: The appellant contended that demands prior to 18.04.2006 were not sustainable because Section 66A, which levies Service Tax on services provided by a foreign service provider on a reverse charge basis, was enacted only from 18.04.2006. This argument was supported by the decision in M/s. Indian National Shipowners Association v. Union of India, upheld by the Hon'ble Supreme Court. 3. Validity of Demand for Periods Prior to 18.04.2006: The Tribunal agreed with the appellant, stating that the demand for Service Tax prior to 18.04.2006 was not sustainable, as the legal authority to levy such tax on recipients of services from abroad was established only with the enactment of Section 66A. 4. Invocation of the Extended Period of Limitation: The appellant argued that the demands were time-barred, as the Department was aware of the Royalty payments from an earlier Show Cause Notice dated 14.10.2003, which was dropped. The Tribunal found that there was no wilful suppression or intent to evade tax and that the services availed were input services used in manufacturing dutiable final products, leading to a revenue-neutral situation. Thus, the invocation of the extended period was not justified. 5. Revenue Neutrality and Eligibility for Input Service Credit: The Tribunal noted that the services from foreign providers were used in manufacturing dutiable final products, entitling the appellant to input service credit. This revenue-neutral situation further supported the appellant's case against the extended period of limitation. Conclusion: The Tribunal partly allowed the appeal, confirming the demand of Service Tax for the normal period while setting aside the penalties imposed. The demand for periods prior to 18.04.2006 was deemed unsustainable, and the extended period of limitation was not justified. The impugned order was modified accordingly.
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