2024 (7) TMI 479 - AT - Service Tax

Non-payment of service tax - foreign remittances to its overseas service providers - taxability under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 read with Section 66A of the Finance Act, 1994 - business exhibition service - levy of penalty u/s 78 of FA - HELD THAT - The issue involved in the present case is no more res integra and has been settled by the Hon ble Bombay High Court in the case of INDIAN NATIONAL SHIPOWNERS ASSOCIATION VERSUS UNION OF INDIA 2008 (12) TMI 41 - BOMBAY HIGH COURT and further affirmed by the Hon ble Apex Court by dismissing the appeal of the department in UNION OF INDIA VERSUS INDIAN NATIONAL SHIPOWNERS ASSOCIATION 2009 (12) TMI 850 - SC ORDER . Therefore, in view of the settled position, the demand of service tax on the services received from abroad prior to 18.04.2006 is set aside. The demand of service tax on business exhibition service which falls under Section 65(105)(zzo) as it existed then was under second category of the Rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. As per the said rule, the service tax can be demanded only when the services are wholly performed in India or partly performed in India, whereas in the present case, admittedly the business exhibition service was conducted wholly outside India, hence demand of service tax is not sustainable for the period from 18.04.2006 to 10.05.2007. Penalty u/s 78 - HELD THAT - As the demand is not sustainable, the penalty under Section 78 of the Act cannot be imposed because the issue relates to interpretation and the position of law was not clear then. In view of this circumstance, imposition of penalty under Section 78 is not sustainable. The impugned order is not sustainable in law and therefore, set aside - appeal allowed.

Summary

Issues:
- Demand of service tax on foreign remittances made to overseas service providers
- Applicability of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994
- Interpretation of the decision of Hon'ble Bombay High Court
- Taxability of business exhibition service falling under Section 65(105)(zzo)
- Imposition of penalty under Section 78

Analysis:

Demand of Service Tax on Foreign Remittances:
The appellant, a registered Goods Transport Agency, received services like Business Auxiliary Service, Market Research Agency Service, and Management Consultancy Service from overseas providers. The issue was non-payment of service tax on these foreign remittances. A show cause notice was issued, leading to the Additional Commissioner confirming a demand of service tax along with interest and penalties. The Commissioner (Appeals) upheld this decision, prompting the appellant to file the present appeal.

Applicability of Rule 2(1)(d)(iv) of the Service Tax Rules:
The appellant argued that the impugned order did not properly appreciate the facts and law. They relied on the decision of the Hon'ble Bombay High Court regarding the taxation of services received from abroad, emphasizing that the service was taxable only after a specific amendment to the Finance Act. The appellant also cited a decision of the Hon'ble Supreme Court to support their case.

Interpretation of the Decision of Hon'ble Bombay High Court:
The appellant contended that the decision of the Hon'ble Bombay High Court, affirmed by the Hon'ble Supreme Court, set a precedent regarding the liability to service tax on reverse charge basis for services provided by foreign service providers. They argued that this legal position should apply to their case as well.

Taxability of Business Exhibition Service:
The appellant highlighted that the business exhibition service in question fell under a specific section and rule, which stated that the service tax could only be demanded if the service was wholly or partly performed in India. Since the business exhibition service was conducted entirely outside India, the demand for service tax during a certain period was deemed unsustainable.

Imposition of Penalty under Section 78:
The appellant argued against the imposition of penalty under Section 78, stating that it should not be imposed mechanically, especially in cases where the issue relates to interpretation and the legal position was not clear. They referenced previous judgments to support their stance.

In conclusion, the Appellate Tribunal set aside the impugned order, ruling in favor of the appellant on various grounds. The demand of service tax on foreign remittances made to overseas service providers was deemed not sustainable for a certain period. The taxability of the business exhibition service conducted outside India was also found to be non-applicable for a specific timeframe. Additionally, the imposition of penalty under Section 78 was considered unsustainable due to the unclear legal position at the time.