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TMI Blog2008 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... are seeking to levy and recover service tax from the persons resident in India on the services which are rendered and/or performed outside India by non-resident service providers. By the aforementioned provisions although the services are performed outside India, the tax is sought to be levied and collected from the recipient of these services, who is based in India. 3. The Petitioner No.1 is the Indian National Ship Owners Association which is registered as a not-for-profit company under Section 25 of the Companies Act, 1956, and whose members are owners of Indian Flag Vessels. Currently, the Petitioner No.1 has 32 members with a combined gross registered tonnage of 7.2 million tonnes, which represents 90% of the total Indian tonnage. The Petitioner No.2 is a National and Citizen of India and is a shareholder of various companies which are members of Petitioner No.1, inter alia, engaged in the operation of ships. 4. In the petition, though the Petitioners challenge constitutional validity of Section 66A of the Act, at the outset, the learned Counsel appearing for the Petitioners stated that he does not press for the reliefs sought in relation to Section 66A of the Act. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices rendered outside India was not to be taxed. The Petitioners pointed out that a question arose as to whether service tax is leviable in relation to the services provided outside Indian territorial water, and therefore, a circular was issued by the Government of India dated 8-10-2001. That circular reads as under:- Service Tax Circular No. 36/4/2001 dated 8-10-2001 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi I am directed to say that question has arisen whether services provided outside the limits of the Indian territorial waters are liable to Service Tax or not. The matter has been examined. At present the levy of service tax extends to the whole of India except the State of Jammu and Kashmir. The expression India includes the territorial waters of India. Indian territorial extend up to twelve nautical miles from the Indian land mass. Chapter V of the Finance Act which governs the levy of Service Tax has not extended to the levy to designated areas in the Continental Shelf and the Exclusive Economic Zone of India (as has been done in case of Central Excise vide Notification No. 166/87-C.E., d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Notification dated 31-12-2004 reads as under. Notification: 36/2004-S.T. dated 31-Dec-2004 In exercise of the powers conferred by sub-section (2) of section 68 of the Finance Act, 1994 (32 of 1994), the Central Government hereby notifies the following taxable services for the purposes of the said sub-section, namely:- (A) the services:- (i) in relation to a telephone connection or pager or a communication through telegraph or telex or a facsimile communication or a leased circuit; (ii) in relation to general insurance business; (iii) in relation to insurance auxiliary service by an insurance agent; and (iv) in relation to transport of goods by road in a goods carriage, where the consignor or consignee of goods is,- (a) any factory registered under or governed by the Factories Act, 1948 (63 of 1948); (b) any company established by or under the Companies Act, 1956 (1 of 1956); (c) any corporation established by or under the law; (d) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; (e) any co-operative society established by or under any law; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause. 8. The learned Counsel submits that by this explanation services provided by a person who does not have permanent residence in India to a person having present permanent residence in India is deemed to be taxable service. But by this explanation levy of service tax from the recipients of the service is not provided for. The learned Counsel submits that thus the levy of service tax from the members of the Petitioners-Association with effect from 16-6-2005 was on the basis of the explanation and the provision of Rule 2(1)(d)(iv) quoted above. The learned Counsel submits that the provisions of Rule 2(1)(d)(iv) are invalid and under the explanation service tax cannot be levied from the members of the Petitioners-association, who have received services to their vessels and ships outside India. With effect from 18-4-2006 Section 66-A was added to the Act. Which reads as under:- (1) 66A (1) Where any service specified in clause (105) of section 65 is, - (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itten submission filed on behalf of the Respondents reliance is placed on the provisions of Rule 2(1)(d)(iv) of the Rules, which have come into force from 16-8-2002 to claim that in view of those Rules service tax was leviable. It was submitted that it is unambiguously clear that a statutory effect had already been created w.e.f. 16-8-2002, by an omnibus provision made by incorporating clause (iv) in Rule 2(1)(d) of the Service Tax Rules under which every service receiver in India became liable to pay Service Tax in relation any taxable service provided by non-resident, who did not have office in India. This statutory effect has to be read harmoniously as if complementing the provisions of Section 68(2) as it existed prior to issue of Notification 36/2004-ST, dated 31-12-2004 rather than negating its existence or challenging its vires since the date of its incorporation, i.e. 1-8-2002. The statutory effect created vide rule 2(1)(d)(iv) cannot be reduced by reference to a subsequently issued notification repeating the contents of the said rule. It was further submitted that in respect of the recipient of services who have been made liable to pay service tax on services received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oblige to get registered. Thus, sections 65, 66, 68 and 69 are pertinent to the present issue. They were subsequently amended. The remaining sections of the 1994 Act substantially continued as originally enacted with minor changes. Under Section 70 of the Finance Act, 1994 every person responsible for collecting service tax must furnish to the Central Excise Officer in the prescribed form and verified in the prescribed manner a clear return. Sections 71, 72, 73 and 74 deal with the filing of the returns, provision for assessment, reopening of assessment and rectification of mistake in assessment order. Section 75 provides for payment of interest at the rate of one and one and half per cent for the every month or part of a month by which the person responsible for collecting service tax delays in paying tax to the credit of the Central Government. Section 76 deals with exemption of the penalty for failure to collect the service tax. Section 77 deals with the penalty for failure to furnish the prescribed return. Section 78 deals with the penalty for suppression the value of the taxable service. Section 79 deals with penalty for failure to comply with notice. Section 94 of the Act emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusive Economic Zone and Territorial Waters of India has been made taxable. That notification does not have the effect of levying service tax on the recipients of the service. Therefore, levy of service tax on the members of the Petitioners-association on the basis of notification dated 1st March, 2002 is plainly without authority of law. 17. Reliance is placed on the provisions of Rule 2(1)(d)(iv) quoted above for justifying the levy of service tax for the period from 16-8-2002. Perusal of the above quoted Rule 2(d)(iv) shows that by that provision a person liable for paying the service tax was defined to mean in relation to any taxable service provided by a person who is non-resident or is from outside India to a person receiving taxable service in India. Apart from the fact that this rule is contrary to the provisions of Section 68 and other provisions of the Act, under this provision the recipient of the service became liable for paying the service tax provided the service was received in India. The entire case of the Petitioners is in relation to the service received by the vessels and ships owned by the members of the Petitioner-association outside India. Therefore, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That explanation was added by Finance Act, 2005 with effect from 16-6-2005. That explanation reads as under:- Explanation- For the removal of doubts, it is hereby declared that where any service provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India and such service is received or to be received by a person who has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India, such service shall be deemed to be taxable service for the purposes of this clause. By this explanation services provided by a non-resident outside India to a person residing in India has been declared to be taxable service. Therefore, though the services provided to the members of the Petitioners-Association outside India becomes taxable service, the charge of the tax continues to be on the provider of service as per the scheme of the Act, and because of the explanation also the Respondents do not get authority of law to levy a service tax in relation to the se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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