2010 (8) TMI 148 - HC - Central Excise

Liability to pay service tax - technical know-how and technical assistance received from foreign collaborators - Section 68 categorically provides that the liability to pay service tax is on the service provider - Held that - this Act is not applicable to non-residents, there is no liability on their part to pay Service tax - Appeal is dismissed

Summary

Issues:
- Challenge to the order passed by the Tribunal on the levy of service tax on transfer of technology.
- Interpretation of Section 68 and Rule 6(1) of the Finance Act, 1994.
- Applicability of service tax on foreign collaborators.
- Second proviso to Rule 6(1) and its implications.
- Comparison with similar judgments in other cases.

Analysis:
The High Court of Karnataka addressed the challenge raised by the revenue against the Tribunal's decision regarding the levy of service tax on the transfer of technology. The Tribunal had ruled in favor of the assessee, stating that service tax was not applicable to the transfer of technology based on previous judgments. The collaboration agreement involved the transfer of technical expertise, training, designs, software, and more from foreign parties. The revenue contended that the foreign collaborators were liable to pay tax as per the agreement and Rule 6(1), placing the responsibility on the service receiver. However, the assessee argued that the service providers being non-residents were not subject to Indian law, and thus, not liable to pay tax. The introduction of Section 66A by Parliament was also highlighted to shift the tax obligation to the service receiver.

Regarding the interpretation of Section 68 and Rule 6(1), the Court emphasized that Section 68 imposes the liability to pay service tax on the service provider, while Rule 6(1) attempts to shift this burden to the service receiver, contradicting the statutory provisions. The Court referenced a Bombay High Court judgment upheld by the Supreme Court, which struck down such rules. The second proviso to Rule 6(1) was discussed, stating that it allows the service receiver to pay tax on behalf of the service provider only when the provider is liable under the Act, which does not apply to non-residents.

The Court compared the present case with previous judgments involving M/s. SKF India Limited and M/s. Araco Corporation, where the Tribunal's decision was upheld, reinforcing the non-liability of non-resident service providers to pay service tax. The Court reiterated that the Tribunal's order aligns with the law and established precedents across the country, dismissing the appeal by the revenue. The judgment emphasized the clarity in statutory provisions and the non-applicability of service tax to foreign collaborators, ultimately upholding the Tribunal's decision.