2008 (9) TMI 120 - AT - Service Tax

Import of services - Demand raised under the head Consulting Engineer Service on ground that as per agreement, appellants were authorized by foreign company to pay service tax in the impugned order, while confirming demand, agreement has been mis-interpreted in case of import of services, recipient of service is liable to pay tax only w.e.f. 1.1.2005 - prima facie case for the appellants against the impugned demand stay granted

Summary

Issues:
Interpretation of agreements for consulting engineer's services received from foreign companies, liability to pay service tax, authorization to pay service tax on behalf of foreign companies, applicability of previous judgments, misinterpretation of agreements by lower appellate authority.

Analysis:
The judgment by Appellate Tribunal CESTAT Chennai dealt with the issue of interpreting agreements for consulting engineer's services received from foreign companies and determining the liability to pay service tax. The lower appellate authority relied on a judgment of the Hon'ble High Court of Kerala in a similar case involving a recipient of services from a Canadian company, where the recipient was held liable to pay service tax based on the agreement between the parties. The authority concluded that the appellants, as recipients of services from foreign companies, were also liable to pay service tax. The learned counsel for the appellants argued that there was no authorization from the foreign companies to pay service tax on their behalf. They pointed out that some agreements did not mention service tax liability, while others stated that certain levies were to be borne by the appellants, which was misconstrued as authorization to pay service tax on behalf of the foreign companies.

The counsel further argued that the decision in the previous case was per incuriam as it was based on an erroneous finding of fact. They referred to a judgment by a Larger Bench of the Apex Court, emphasizing that tax liability should not be determined based on agreements between parties to which the State Govt. was not a party. The Tribunal examined the relevant provisions of the agreements in the present case and found that the provision stating service tax liability shall be borne by the recipient did not mean the statutory liability was on the appellants. They cited a judgment by the Tribunal's Larger Bench, indicating that a service recipient was liable to pay service tax only from a certain date. The Tribunal found a prima facie case for the appellants against the impugned demand, leading to a waiver of pre-deposit and stay of recovery for the service tax and penalty amounts.

Overall, the judgment highlighted the importance of interpreting agreements accurately, determining the actual liability to pay service tax, and considering previous judgments to establish legal precedents in similar cases. The Tribunal's decision focused on the specific provisions of the agreements, the nature of service tax liability, and the applicability of previous rulings to ensure a fair and just outcome for the appellants.