2007 (4) TMI 23 - AT - Service Tax

Service tax liability Revenue contended that the appellant is liable to pay the service tax liability for the services received by him from the Foreign Service provider Held that the revenue contention is not correct and accordingly allowed appeal partly

Issues Involved:
1. Liability of foreign service providers to pay service tax.
2. Liability of the recipient of services in India to pay service tax prior to 16-08-2002.
3. Specific contractual obligations regarding tax payments.
4. Applicability of service tax based on the nature of services provided.
5. Interpretation of rules and provisions under the Service Tax Rules and Finance Act, 1994.

Detailed Analysis:

1. Liability of Foreign Service Providers to Pay Service Tax:
The primary issue was whether foreign service providers were liable to pay service tax for services rendered to an Indian recipient. The Tribunal noted that under Section 68 of the Finance Act, 1994, every person providing taxable service is liable to pay service tax, irrespective of their nationality. The Tribunal emphasized that there is no immunity for foreigners from Indian service tax laws when services are provided in India. The Tribunal ruled that all foreign service providers in question were liable to pay service tax and penalty, dismissing their appeals (Service Tax Appeal Nos. 159 to 163 of 2005).

2. Liability of the Recipient of Services in India to Pay Service Tax Prior to 16-08-2002:
The Tribunal examined whether the Indian recipient of services (Grasim) was liable to pay service tax for services received before 16-08-2002. The Tribunal referred to the third proviso to Rule 4 and the second proviso to Rule 6 of the Service Tax Rules, which allowed a non-resident service provider to authorize another person to pay the service tax on their behalf. In cases where the contract explicitly mentioned that the recipient would bear the tax liability, the Tribunal held that the recipient was liable to pay the service tax. Consequently, the Tribunal allowed the appeals filed by the Revenue for cases where such contractual clauses existed (Service Tax Appeal Nos. 169 and 172 of 2005), restoring the orders-in-original against the recipient.

3. Specific Contractual Obligations Regarding Tax Payments:
The Tribunal scrutinized the contracts to determine the liability for service tax payments. In Service Tax Appeal Nos. 169 and 172 of 2005, the contracts contained clauses that explicitly stated that the recipient (Grasim) would bear all applicable taxes, including service tax. Hence, the Tribunal ruled that Grasim was liable to pay the service tax as per the contractual agreement. Conversely, in Service Tax Appeal Nos. 170, 171, and 173 of 2005, where no such clauses were present, the Tribunal dismissed the Revenue's appeals, upholding the decision that the recipient was not liable.

4. Applicability of Service Tax Based on the Nature of Services Provided:
There was a dispute regarding the classification of services provided, specifically whether they were "Consulting Engineer" services or "manpower recruitment" services. The Tribunal noted that the nature of services was not disputed at this stage, and both parties agreed that the services rendered were taxable. The Tribunal emphasized that the provision of taxable services in India, regardless of the preliminary activities performed abroad, constituted a taxable event under Indian law.

5. Interpretation of Rules and Provisions Under the Service Tax Rules and Finance Act, 1994:
The Tribunal interpreted the relevant rules and provisions to determine the liability for service tax payments. It clarified that the Service Tax Rules allowed a non-resident service provider to authorize another person to pay the service tax. The Tribunal also referred to judicial precedents to support its interpretation, emphasizing that the liability to pay service tax could be contractually assigned to the recipient before the amendment on 16-08-2002.

Final Order:
1. Service Tax Appeal Nos. 159 to 163 of 2005: Dismissed.
2. Service Tax Appeal Nos. 170, 171, and 173 of 2005: Dismissed.
3. Service Tax Appeal Nos. 169 and 172 of 2005: Allowed, restoring the orders-in-original against the respondent (Grasim).

(Dictated and pronounced in the open court)

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