2009 (9) TMI 674 - AT - Service Tax

Services received from outside India- banking and other financial services- The appellant had availed the services of M/s. Visa International Service Association USA (hereinafter referred to as VISA International ) falling under the category of Banking & Financial Services under section 65(12)(vii) of the Finance Act 1994 and had paid for the same. Investigations revealed that VISA International did not have an office in India and hence the Service Tax liability had to be discharged by the recipient of service viz. M/s. Canara Bank in terms of rule 2(1)(d)(iv) of Service Tax Rules 1994. In the light of the decision of Indian National Shipowners Association v. Union of India 2009 -TMI - 32013 - HIGH COURT OF BOMBAY held that- the services provided before 18.4.2006 are not liable for service tax thus appeal is allowed.

Summary

Issues Involved:
1. Service tax liability on the recipient of services from VISA International.
2. Applicability of rule 2(1)(d)(iv) of the Service Tax Rules, 1994.
3. Retrospective application of service tax provisions.
4. Validity of the show-cause notice and time-bar issue.

Issue-wise Detailed Analysis:

1. Service Tax Liability on the Recipient of Services from VISA International:
The core issue was whether the appellant, as the recipient of services from VISA International, was liable to pay service tax under the reverse charge mechanism. The appellant argued that their service tax liability should only arise from 18-4-2006, the date when section 66A was introduced, which explicitly brought the recipient of services within the tax net. The Tribunal upheld this argument, referencing the Mumbai High Court's decision in the Indian National Shipowners Association case, which clarified that service tax on recipients of services from abroad could only be levied from 18-4-2006 onwards.

2. Applicability of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994:
The Commissioner (Appeals) had initially upheld the demand based on rule 2(1)(d)(iv), which made the recipient liable for service tax if the service provider was non-resident and had no office in India. However, the Tribunal noted that this rule was invalidated by the Mumbai High Court, which held that the rule contradicted the provisions of section 68 of the Finance Act, 1994. The High Court determined that the rule could not impose service tax liability on the recipient prior to the introduction of section 66A.

3. Retrospective Application of Service Tax Provisions:
The appellant contended that the provisions imposing service tax on the recipient could not be applied retrospectively. The Tribunal agreed, citing the Mumbai High Court's judgment, which stated that the amendment to rule 2(1)(d)(iv) could not apply retrospectively and that the service tax liability on recipients was enforceable only after 18-4-2006. The Tribunal thus concluded that the demand for service tax for the period from 16-8-2002 to 31-7-2005 was not legally sustainable.

4. Validity of the Show-Cause Notice and Time-Bar Issue:
The appellant argued that the show-cause notice issued on 18-4-2006 was time-barred, as it was issued after a period of one year from the audit note dated 28-4-2005. The Tribunal did not specifically address this issue in its final decision, as it resolved the appeal on the merits by determining that the service tax liability did not exist for the period in question. Consequently, the Tribunal set aside the impugned order and allowed the appeal, providing consequential relief to the appellant.

Conclusion:
The Tribunal, following the Mumbai High Court's decision, held that the appellant was not liable for service tax as the recipient of services from VISA International for the period prior to 18-4-2006. The impugned order was set aside, and the appeal was allowed with consequential relief. The Tribunal's decision was based on the legal principle that the service tax liability on the recipient of services from abroad could only be imposed from the date of the introduction of section 66A in the Finance Act, 1994.