2009 (12) TMI 452 - AT - Service Tax

Reverse Charges - the appellant herein is a wholly owned 100 per cent subsidiary of Metro Cash and Carry, Germany and operates cash and carry distribution centres in India. MCC, Germany is the management entity for all cash and carry activities of Metro group worldwide. Charge of service tax on services received from outside India. Period, November, 2003 to December, 2005 involved. Held that - in the light of the decision of Indian National Shipowners Association v. Union of India 2009 -TMI - 32013 - HIGH COURT OF BOMBAY, before 18.04.2006, there was no authority vested by law in revenue to levy service tax on a person who is resident in India, but who receives services outside India.

Summary

Issues:
1. Taxability of services rendered by the appellant under the category of 'franchisee service.'
2. Liability of the appellant as a recipient to pay service tax under the Finance Act, 1994.

Issue 1: Taxability of services rendered by the appellant under the category of 'franchisee service.'

The appellant, a subsidiary of a German company, entered into a License Agreement granting rights to use trademarks and know-how. The revenue contended that the amount paid by the appellant to the German company would fall under the category of services rendered by a franchise service. Show-cause notices were issued, and the Adjudicating Authority confirmed the demands, penalties, and interest. The counsel for the appellant argued that the issue was covered by a decision of the High Court of Bombay and that the relevant period predated the applicability of certain provisions. The Adjudicating Authority's contentions on the taxability of the services were discussed, leading to a detailed analysis of whether the services provided by the appellant could be categorized as 'franchisee service.'

Issue 2: Liability of the appellant as a recipient to pay service tax under the Finance Act, 1994.

The key question was whether the appellant, as a recipient of services from a non-resident entity, was liable to pay service tax under the Finance Act, 1994. The Adjudicating Authority held that the appellant, being the service receiver, was liable to pay the service tax, citing specific provisions. However, the Tribunal disagreed with this interpretation, referencing a judgment of the High Court of Bombay that clarified the tax liability in cases where services were provided by non-residents to recipients in India. The Tribunal highlighted the legal position established by the High Court's judgment and the subsequent dismissal of a Special Leave Petition by the Supreme Court, thereby concluding that the appellant was not liable to pay service tax as a recipient until a certain date. Consequently, the appeals were allowed, setting aside the impugned orders and providing relief to the appellant based on the legal interpretation of the relevant provisions.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Bangalore, provides a comprehensive understanding of the issues involved, the arguments presented, and the legal reasoning leading to the decision in favor of the appellant.