2006 (9) TMI 2 - HC - Service Tax

Service Tax Commission agent Taxable service provided from outside India and received in India liable to service tax Matter whether commission agents services taxable in impugned case to be decided on merits by concerned authorities

Summary

Issues:
Challenge to the constitutional validity of Section 66A of the Finance Act, 1994. Interpretation of Section 66A regarding taxation of services received in India from outside the country. Taxability of services provided by commission agents situated in foreign countries for export business from India.

Analysis:
The writ petition challenges the constitutional validity of Section 66A of the Finance Act, 1994, which deals with the taxation of services provided from outside India and received in India. The section specifies the conditions under which such services are considered taxable in India. The Central Government issued rules under Section 66A, known as the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, to regulate the taxation of such services.

The petitioner's argument revolves around the interpretation of Section 66A, contending that any service obtained by a person with a fixed place of business or establishment in India should be liable to tax for services availed in a foreign country. An example cited is the liability to pay tax in India for a haircut received abroad by an individual with a permanent address in India. However, the court rejects this argument, emphasizing that the rules clarify that only taxable services provided from outside India and received in India are subject to service tax. In the given example of a haircut, since the service was not received in India, it does not fall under the purview of taxation.

The case involves a petitioner who is an exporter and has engaged the services of a commission agent located in a foreign country for facilitating export business from India to other foreign countries. The authorities assert that the services of the commission agent are taxable in India, while the petitioner argues otherwise. The relevant rule, Rule 3 of the Taxation of Services Rules, outlines the conditions under which taxable services provided from outside India are subject to taxation in India.

The court notes that the issue of whether the services provided by the commission agent are "received in India" is still pending before the statutory authorities. It refrains from delving into this issue at the current stage. The judgment concludes by dismissing the petition but clarifying that the petitioner can still contest the taxability of the services provided by the commission agent before the Assessing Officer or any Appellate Authority, based on the merits of the case. The court finds no constitutional flaw in the taxation scheme under Section 66A but leaves room for further assessment by the appropriate authorities.

In summary, the judgment upholds the constitutionality of Section 66A of the Finance Act, 1994 and the corresponding rules governing the taxation of services provided from outside India and received in India. It highlights the distinction between taxable and non-taxable services based on the location of service receipt and underscores the role of statutory authorities in determining the tax liability of specific services, such as those provided by commission agents in foreign countries for export businesses originating in India.