2014 (8) TMI 855 - AT - Service Tax

Import of servcies - technical assistance agreement - technical knowhow fees - Held that - In view of the foregoing and having regard to the fact that Section 66A of the Finance Act 1994 giving the authority to charge service tax from the service recipient in case of receipt of service from outside India came into effect from 18.4.2006 and the period involved in this case is prior thereto, the demand confirmed cannot survive. The issue is no longer res integra to warrant elaborate discussion. It is nonetheless dismaying to note that neither the Show Cause Notice nor the order-in-original/order-in-appeal even remotely mention the legal provision under which the recipients of service (i.e. the appellants) were liable to pay the impugned tax; a flaw which by itself could arguably be fatal. - Decided in favour of assessee.

Summary

Issues:

1. Validity of service tax demand for technical assistance agreement with a foreign company.
2. Applicability of reverse charge mechanism prior to 18.4.2006.
3. Compliance with legal provisions in issuing Show Cause Notice and orders.

Issue 1: Validity of service tax demand for technical assistance agreement with a foreign company:

The appellants had entered into a technical assistance agreement with a company in Thailand for providing technical advice to manufacture auto parts. The service received was classified as Consulting Engineering Service, and the appellants were held liable to pay service tax for receiving services from outside India. The adjudicating authority invoked the extended period due to wilful mis-statement/suppression by the appellants. The appellate authority upheld the order-in-original. However, it was noted that the legal provision allowing service tax from service recipients in case of services from outside India came into effect from 18.4.2006, while the period in question was prior to this date. The demand was deemed unsustainable, and the order was quashed, allowing the appellant's appeal.

Issue 2: Applicability of reverse charge mechanism prior to 18.4.2006:

The ld. A.R. conceded that the reverse charge mechanism lacked a legal basis before 18.4.2006. Section 66A of the Finance Act 1994, which authorized charging service tax from service recipients for services from outside India, came into effect from 18.4.2006. As the period involved in this case was prior to this date, the demand for service tax could not be sustained. The absence of legal basis for the reverse charge mechanism before 18.4.2006 further supported the quashing of the impugned order.

Issue 3: Compliance with legal provisions in issuing Show Cause Notice and orders:

It was highlighted that neither the Show Cause Notice nor the order-in-original/order-in-appeal mentioned the legal provision under which the appellants were liable to pay the tax. This omission was considered a flaw that could potentially be fatal. The lack of clarity regarding the legal basis for the tax liability raised concerns about procedural compliance. The unsustainable nature of the impugned order led to its quashing, emphasizing the importance of adherence to legal provisions in such proceedings.

This detailed analysis of the judgment addresses the issues of validity of service tax demand, reverse charge mechanism applicability, and compliance with legal provisions in issuing notices and orders. The decision to quash the impugned order was based on the inapplicability of the legal provision pre-18.4.2006 and the procedural flaws in the documentation related to the tax liability.