2008 (10) TMI 154 - AT - Service Tax

Whether, for the period September, 2002 to February, 2003, the appellants are liable to pay service tax under the head consulting engineer s service to the exchequer in respect of the fee paid by them to two foreign companies - charging Section 66A empowering levy and collection of Service Tax from the recipients of the services came into force only w.e.f. 18-4-2006 - held that a taxable service provided by a non-resident from outside India, who did not have any office in India, was not assessable to service tax in the hands of its recipient in India for any period prior to 1-1-2005

Summary

Issues:
Whether the appellants are liable to pay service tax under the head "consulting engineer's service" for the period September 2002 to February 2003 to two foreign companies engaged as contractors for revamp of manufacturing plants in India.

Analysis:
In this appeal, the main contention raised by the appellants is that the contracts with foreign companies were works contracts and not vivisectable into distinct taxable services like consulting engineer's service. They argued that the foreign companies did not meet the criteria to be classified as "consulting engineers" as per the definition under Section 65 of the Finance Act, 1994. Additionally, they pointed out that works contracts only became a taxable service from June 1, 2007, so the fee paid under the agreements should not be taxed even before this date. They also highlighted that the charging Section 66A of the Act, enabling the levy and collection of Service Tax from service recipients, was effective only from April 18, 2006, and thus they were not liable to pay service tax as recipients of any taxable service from abroad during the disputed period. Furthermore, they relied on a previous decision of the Larger Bench of the Tribunal in the case of M/s. Hindustan Zinc Ltd., which supported their position. The appellants' arguments were presented before the Tribunal, along with the findings reiterated by the lower authorities.

Upon reviewing the submissions, the Tribunal noted that the Revenue failed to establish that the contractors had any office in India during the relevant period or that there was a charging section for the levy and collection of service tax from service recipients before April 18, 2006. The Tribunal observed that the case of M/s. Hindustan Zinc Ltd., as decided by the Larger Bench, set a precedent that a taxable service provided by a non-resident from outside India without an office in India was not subject to service tax in the hands of the recipient in India before January 1, 2005. The Tribunal also highlighted that the question addressed by the Larger Bench in the Hindustan Zinc case was whether a service labeled as "consulting engineer's service" received from outside India before January 1, 2005, was liable to service tax in the hands of the recipient, which was answered in the negative.

Based on the precedent set by the decision of the Larger Bench in the Hindustan Zinc case, the Tribunal concluded that the view taken by the lower authorities was legally unsustainable. Consequently, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellants. The judgment was dictated and pronounced in the Court by the Tribunal members.