2014 (2) TMI 525 - CGOVT - Service Tax

Classification - preparation of ship model of 90 mts AOPV including all appendages as per the technical data and design - assessee contended that the said service was liable to service tax under the reverse mechanism only if the service was partly or wholly performed in India. Since the said service was wholly received in Netherlands they were not liable to service tax under the reverse mechanism. - Held that - In this particular transaction the said taxable services mentioned in Section 65(105)(zzh) can be said to have been received in India only when such services are partly or wholly performed in India. In the instant case service is performed and received only outside India i.e. in the Netherlands and there is no import of service. As such there is no taxable service. - the conclusion of the Lower Adjudicator that the service merits classification under Section 65(105)(g) - Consulting Engineer, gets set aside. - Decided in favor of assessee.

Summary

Issues Involved:
1. Classification of the service received.
2. Applicability of service tax under the reverse mechanism.
3. Allegation of suppression or mis-declaration.
4. Imposition of penalty and interest.
5. Calculation of duty demanded.

Issue-wise Detailed Analysis:

1. Classification of the Service Received:
The appellant argued that the service received from M/s. Maritime Research Institute, Netherlands should be classified under "Technical Testing and Analysis Service" as defined under Section 65(105)(zzh) and not under "Consulting Engineer" as held by the Additional Commissioner. The appellant provided definitions and precedents to support their claim, emphasizing that the service involved physical work such as model testing and not mere advice or consultancy. The judgment concluded that the service received merits classification under "Technical Testing and Analysis Service" and not "Consulting Engineer," as the reports from M/s. Maritime Research Institute were test results rather than consultancy.

2. Applicability of Service Tax under the Reverse Mechanism:
The appellant contended that the service was wholly performed in the Netherlands and thus not liable for service tax under the reverse mechanism as per Section 65(105)(zzh) and Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The judgment agreed, stating that the taxable services mentioned in Section 65(105)(zzh) can be said to have been received in India only when such services are partly or wholly performed in India. Since the service was performed entirely in the Netherlands, there was no import of service and, thus, no taxable service.

3. Allegation of Suppression or Mis-declaration:
The appellant argued that the demand was barred by limitation, as all facts were within the knowledge of the department during the audit in 2008. They cited various judgments to support that mere non-declaration is not sufficient to invoke a larger period but requires a positive act of suppression. The judgment did not find sufficient grounds for suppression or mis-declaration, as the appellant had provided all necessary information during the audit.

4. Imposition of Penalty and Interest:
The appellant argued that no penalty should be imposed as they were not liable to pay service tax under the reverse mechanism. They cited judgments to support that penalties are not imposable in cases involving interpretation of law or when the issue is revenue neutral. The judgment concluded that since the service was not taxable, the demand for penalty and interest was also vacated.

5. Calculation of Duty Demanded:
The appellant provided a detailed calculation of the duty, arguing that the demand calculation by the Additional Commissioner was incorrect. The judgment did not delve into the specifics of the calculation since the primary conclusion was that the service was not taxable, thus nullifying the demand.

Conclusion:
The appeal was allowed with consequential relief as per law. The service received by the appellant was classified under "Technical Testing and Analysis Service," and since it was performed entirely in the Netherlands, it was not liable for service tax under the reverse mechanism. Consequently, the demands for service tax, interest, and penalties were vacated.