2009 (11) TMI 479 - AT - Service Tax

Reverse Charges - Assessee were subsidiaries of a foreign company. Service tax had been demanded from assessee on ground that they had paid management fees to parent company which was nothing but payment for management consultancy and, therefore as service receiver they were liable to pay service tax. Held that- in the light of the decision of Indian National Shipowners Association v. Union of India 2009 -TMI - 32013 - HIGH COURT OF BOMBAY, held that there was no liability on such service receiver prior to 18.04.2006.

Summary

Issues:
- Liability of subsidiaries to pay service tax on management fees paid to parent company
- Imposition of penalties under various sections of Finance Act, 1994
- Applicability of decisions of High Courts on service tax liability pre-18-4-2006

Liability of subsidiaries to pay service tax on management fees paid to parent company:
The case involved four subsidiaries of a multinational company being demanded service tax on management fees paid to the parent company. The issue was whether these payments constituted management consultancy services, making the subsidiaries liable to pay service tax. The advocate for the appellants argued that the management fees were not for consultancy services, and thus, the appellants were not liable to pay service tax. The Commissioner, however, passed an order imposing penalties after exercising revision powers under the Finance Act, 1994. The Tribunal, considering the decisions of the High Courts of Bombay and Delhi, concluded that the appellants were not liable to pay service tax for the period pre-18-4-2006, as per the cited decisions. Consequently, the Tribunal allowed the stay petition and decided in favor of the appellants, stating that they were not liable to pay service tax on services received prior to 18-4-2006.

Imposition of penalties under various sections of Finance Act, 1994:
Penalties were imposed on the appellants under different sections of the Finance Act, 1994. The advocate representing the appellants argued that the management fees paid were not for management consultancy services, and therefore, the appellants should not be held liable to pay service tax. The Tribunal, after considering the arguments and the decisions of the High Courts of Bombay and Delhi, found in favor of the appellants. The Tribunal allowed the stay petition and decided that the appellants were not liable to pay service tax for the period prior to 18-4-2006, based on the cited decisions. Consequently, the appeals were allowed, and the Tribunal did not delve into the merits of the case, as it was established that the appellants were not liable to pay service tax for the mentioned period.

Applicability of decisions of High Courts on service tax liability pre-18-4-2006:
The appellants relied on the decisions of the High Courts of Bombay and Delhi to argue that they were not liable to pay service tax for the period pre-18-4-2006. The Tribunal agreed with the appellants, citing the decisions mentioned, and allowed the stay petition. It was concluded that the appellants were not liable to pay service tax on services received before 18-4-2006. The Tribunal did not find it necessary to further examine the merits of the case, as it was established that the appellants were not liable to pay service tax based on the cited decisions. Therefore, the appeals were allowed in favor of the appellants.