2023 (7) TMI 304 - AT - Service Tax

Exemption from Service Tax or not - making payment for royalty fee to their group company situated abroad for using their technology, Brand name etc. - applicability of Notification No.17/2004-ST dated 10.09.2004 - reverse charge mechanism - HELD THAT - Section 66 of the Finance Act, 1994 is the charging Section, which provides that in respect of taxable services mentioned therein, service tax shall be levied and collected in such manner as may be prescribed. Even for the import of service, the service tax has to be levied under Section 66 ibid. Since a deeming fiction was created in Rule 66A ibid, providing for payment of service tax by the recipient of service, such levy is in consonance with the charging provisions contained in Section 66 ibid. Thus, all the provisions of Chapter V of the Finance Act should also be applicable in respect of the service tax paid under Section 66A ibid - In the present case, since the appellant is liable to pay service tax as a recipient of the taxable service, the provision of Section 66 ibid should also be applicable to it. In other words, upon fixing the responsibility for payment of service tax under reverse charge mechanism, no distinction can be placed between the service receiver and service provider for the purpose of Section 66 ibid. Therefore, the benefit of exemption Notification No. 17/2004-S.T., dated 10.9.2004 should also be available to the respondent. The issue before us in the present case has already been decided by the Co-ordinate Bench of the Tribunal in the case of M/S UNITED NEWS OF INDIA VERSUS C.S.T. NEW DELHI 2017 (3) TMI 17 - CESTAT NEW DELHI . While interpreting the provisions of Section 66A ibid, it has been held that the benefit of the exemption should also be available to the recipient of service. The Hon ble High Court of Bombay, in the case of Indian National Shipowners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT , had held that the law laid down by the Hon ble Supreme Court in its judgement in LAGHU UDYOG BHARATI VERSUS UNION OF INDIA 1999 (7) TMI 1 - SUPREME COURT is squarely applicable to Rule 2(d)(iv), where by issue of notification dated 31.12.2004, any taxable service provided by a person who is a non-resident or is from outside India is notified for payment of service tax by a person who receives such taxable service in India. It was held by Hon ble High Court of Bombay that the Union of India got the legal authority to levy service tax on the recipients of the taxable service, first time when the Finance Act, 1994 was amended by inserting section 66A through the Finance Act, 2006 w.e.f. 18.4.2006. In other words, it is only after enactment of Section 66A that taxable services received from abroad by a person belonging to India are taxed in the hands of Indian residents. There are no infirmity in the impugned order passed by the Ld. Commissioner of CGST Central Excise, Thane Rural, Mumbai - Accordingly, the appeal filed by the Revenue is dismissed.

Summary

Issues:
The issues involved in this case are the applicability of exemption under Notification No. 17/2004-ST dated 10.09.2004 to the respondent-assessee and the interpretation of Section 66A of the Finance Act, 1994 regarding the liability of service tax payment by the recipient of service.

Applicability of Exemption:
The respondent-assessee, engaged in manufacturing and providing services, was found to be wrongly claiming exemption from service tax under Notification No. 17/2004-ST. The Revenue argued that since the exemption is related to taxable services provided by the holder of intellectual property right, it should not apply to the respondent-assessee. However, the respondent-assessee contended that as per Section 66A, they are required to pay service tax under reverse charge mechanism, making them the service provider. The Tribunal held that the benefit of the exemption should be available to the respondent-assessee, citing previous decisions and legal provisions.

Interpretation of Section 66A:
Section 66A of the Finance Act, 1994 creates a deeming fiction for payment of service tax by the recipient of service. The Tribunal observed that since the appellant is liable to pay service tax as a recipient of the taxable service, the provisions of Section 66 should also be applicable. The Tribunal referred to previous rulings, including one by the Co-ordinate Bench of the Tribunal, which held that the exemption should be available to the recipient of service. The Tribunal also noted a decision by the Hon'ble High Court of Bombay regarding the legal authority to levy service tax on recipients of taxable services. Based on these interpretations, the Tribunal dismissed the appeal filed by the Revenue and disposed of the cross objection filed by the respondent-assessee.

Separate Judgement:
The order was pronounced by the Hon'ble Mr. M. M. Parthiban, Member (Technical) on 03.07.2023.