2010 (5) TMI 33 - HC - Service Tax

Import of services section 66A cross border services by a foreign service provider - the services provided by the foreign service provider were in the nature of management consultancy services falling under Section 65(105)(r) of the Finance Act, 1994. Although the period covered in these writ petitions spill over 18.04.2006, the learned counsel appearing on behalf of the petitioners made a categorical statement that these writ petitions are confined only to the period prior to 18.04.2006. Held that the provisions of Section 66A would be applicable only from 18.04.2006 and that prior to that date, services rendered by a non-resident service provider to a resident recipient could not be taxed as a service at the hands of the resident recipient. Decision in the matters of Unitech Limited v. Commissioner of Service Tax, Delhi (2009 -TMI - 34578 - DELHI HIGH COURT ) and of Indian National Shipowners Association v. Union of India (UOI) (2009 -TMI - 32013 - HIGH COURT OF BOMBAY) followed decided in favor of assessee

Summary

Issues:
1. Taxation of cross-border services provided by a foreign service provider to resident recipients prior to the introduction of Section 66A.
2. Applicability of Section 66A of the Finance Act, 1994, to services provided by non-resident service providers to resident recipients.
3. Legal authority to levy service tax on Indian residents receiving services from non-residents before and after the enactment of Section 66A.

Analysis:
1. The writ petitions addressed the taxation of cross-border services provided by foreign service providers to resident recipients before the introduction of Section 66A in the Finance Act, 1994. The petitioners argued that prior to 18.04.2006, such services could not be taxed at the hands of resident recipients.

2. Post the introduction of Section 66A, services specified in Section 65(105) of the Finance Act, 1994, provided by non-residents to Indian residents became taxable. The judgment clarified that if a non-resident service provider offers services to an Indian resident, the service is treated as if the recipient provided the service in India, subject to the provisions of Chapter V of the Act.

3. The court referred to the decision in the case of Unitech Limited v. Commissioner of Service Tax, Delhi, and the Bombay High Court's ruling in Indian National Shipowners Association v. Union of India. These cases established that Section 66A applied only from 18.04.2006 onwards. Before this date, services provided by non-residents to residents were not taxable at the hands of the recipients.

4. The judgment highlighted that the enactment of Section 66A granted legal authority to levy service tax on Indian residents receiving services from non-residents. The Bombay High Court's observations emphasized that prior to this provision, the law did not empower taxing services received from abroad by Indian residents. The court restrained the respondents from levying service tax on the petitioners' association members for the period before 18.04.2006.

5. The decision was supported by the High Court of Punjab and Haryana in Commissioner of Central Excise Commissionerate, Ludhiana v. Bhandari Hosiery Exports Ltd, which relied on the Bombay High Court's judgment and the decision in Unitech Limited. The judgment quashed the show cause notices issued by the Commissioner of Service Tax, Delhi, pertaining to the period before 18.04.2006 regarding the relevant services.

In conclusion, the judgment clarified the taxation of cross-border services provided by non-residents to Indian residents before and after the enactment of Section 66A, establishing the legal framework for service tax liability in such scenarios.