2019 (1) TMI 1242 - AT - Service Tax

Reverse Charge Mechanism - consultancy services received from abroad - payment made by appellant to the consultants situated abroad during the period 1.7.2003 to 31.03.2008 - Held that - Prior to 18.04.2006, the law is now clearly settled, that no service tax liability arises on the assessee under reverse charge mechanism for the payments made to foreign entities who render services to assessee - service tax liability, interest thereof and penalties imposed for the payments made to foreign consultants prior to 18.04.2006 is not sustainable and liable to be set aside. Service tax liability post 18.04.2006 - Held that - The provisions of Section 66A of the Finance Act, 1994 are very clear and unambiguous in the case in hand, post 18.04.2006 the service tax liability needs to be discharged by the appellant as per the provisions of law - appellant had discharged the tax liability and on our direction, has also discharged the interest on 14.01.201 - the tax confirmation along with interest upheld. Penalty - Held that - Appellant being a Government undertaking, would have been under the bonafide impression that tax liability may not arise. It is also to be noted that during the period in question, the law was in a flux situation, inasmuch as various litigations were pending before various Courts and the matter was settled by Hon ble High Court of Bombay and Apex Court in 2009 - appellant has made out a case for setting aside of the penalties - penalty set aside by invoking section 80. Appeal allowed in part.

Summary

Issues:
1. Tax liability under reverse charge mechanism for payments to foreign consultants.
2. Service tax liability pre and post 18.04.2006.
3. Imposition of penalties on the appellant.

Analysis:

Issue 1: Tax liability under reverse charge mechanism for payments to foreign consultants
The appellant, a subsidiary of a government company, engaged consultants abroad to comply with statutory requirements for marketing their products in foreign markets. Revenue authorities argued that payments to foreign consultants are taxable under reverse charge mechanism. The adjudicating authority upheld the tax demands. The appellant contended that pre-18.04.2006, as per the judgment in the case of Indian National Ship Owners' Association, no service tax liability arises on payments to foreign entities. The Tribunal agreed, setting aside the tax liability, interest, and penalties for payments made to foreign consultants before 18.04.2006.

Issue 2: Service tax liability pre and post 18.04.2006
Regarding service tax liability post 18.04.2006, the Tribunal held that as per Section 66A of the Finance Act, 1994, the appellant is liable to discharge the tax liability for services received from foreign consultants. The appellant paid the tax liability and interest during the proceedings. The Tribunal upheld the tax confirmation and interest payment but set aside the penalties imposed, considering the appellant's bonafide belief and the unsettled legal situation during the relevant period.

Issue 3: Imposition of penalties on the appellant
The Tribunal set aside the penalties imposed on the appellant, considering their status as a government undertaking, the unsettled legal landscape during the relevant period, and the bonafide belief that tax liability may not arise. By invoking Section 80 of the Finance Act, 1994, the Tribunal decided to set aside the penalties. The appeal was disposed of accordingly, with the operative portion of the order pronounced in open court.