2009 (5) TMI 451 - AT - Service Tax

Reverse charges- services received from outside India- whether appellant is liable to pay service tax on the Commission paid to the person/party who has no business establishment in India and providing taxable services to them (Indian company) being a service receiver for the period of January 2005 to March 2006. In the light of the decision of Indian National Shipowners Association v. Union of India 2009 -TMI - 32013 - HIGH COURT OF BOMBAY, held that- no liability arise, thus allowed the appeal.

Summary

Issues: Liability of service recipient to pay service tax on commission paid to a party without business establishment in India.

The judgment dealt with the issue of whether the appellant is liable to pay service tax on the commission paid to a party providing taxable services to an Indian company, despite having no business establishment in India. The appellant argued that the recovery of service tax from the service recipient prior to 18-4-2006 is impermissible, citing the Indian National Shipowners Association case. On the other hand, the Department disagreed, relying on the decision in the Union of India v. Aditya Cement case. The Appellate Tribunal, after hearing both sides, found in favor of the appellant, stating that the revenue cannot bring the appellant under the law's purview when the recovery provision for tax demand from the service recipient was not present in the statute book until the amendment made on 18-4-2006.

The appellant's counsel pointed out the difficulties highlighted by the Supreme Court in the Laghu Udyog Bharati case, leading to the amendment inserting section 66A into the Finance Act, 1994. This amendment, enacted in 2006, empowered the Central Government to make rules for declaring the service recipient liable to pay service tax. The appellant's case pertained to the period from January 2005 to March 2006, predating the amendment. Therefore, the appellant argued that the recovery of service tax from the service recipient before 18-4-2006 is not permissible, as per the Indian National Shipowners Association case. The counsel contended that the order passed by the authorities below should not be upheld due to this reason.

The Departmental Representative (DR) did not agree with the appellant's submission, citing the decision of the High Court of Rajasthan in the Union of India v. Aditya Cement case. The DR argued that the authorities below were correct in their decision and had passed the appropriate order based on the precedent.

After hearing both sides and examining the records, the Appellate Tribunal disagreed with the revenue's stance. The Tribunal held that since the provision for recovery of tax demand from the service recipient was absent in the statute book until the amendment on 18-4-2006, the revenue had no grounds to bring the appellant within the scope of the law. Consequently, the appeal of the appellant was allowed based on this reasoning.