Before enactment of Section 66A tax on services received from persons abroad are without merit

Demands on Indian companies for tax on services of BAS received from persons abroad – held that “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 the Indian residents – Since Section 66A was introduced on 18.4.2006 much after the material period, the impugned order had to be sustained – revenue’s appeal rejected

IN THE CUSTOMS, EXCISE & SERVICE TAX

APPELLATE TRIBUNAL SOUTH ZONAL BENCH AT CHENNAI

 Appeal No. S/70 & 71/2007 and S/93 & 94/2007

 (Arising out of Orders-in-Appeal No. 20 to 23/2007 (M-III) dated 28.2.2007 passed by the Commissioner of Central Excise (Appeals), Chennai)

 CCE (ST), Chennai….Appellant

 Versus

M/s. EID Parry (2 Appeals)

M/s. Audco India Ltd.

M/s. K.H. Arind Ltd…..Respondents

Date of Order:  06.04.2009

Final Order

These appeals are filed by the Revenue. Vide the impugned order the Commissioner (Appeals) vacated the demands and penalties raised on the appellants as per details below:-

2.         The respondents in all these cases received Business Auxiliary Service (BAS) from persons resident abroad. Commission agents employed by them had canvassed purchase orders for goods manufactured by the respondents. The original authority found that by enacting sub-section (2) of Section 68 the Government provided for recovering service tax from such persons as may be specified other than those rendering service. Simultaneously sub-clause (iv) to Rule 2(1)(d) of Service Tax Rules, 1994 was introduced defining person liable to pay service tax when such service is received from persons based abroad, which read as follows:-

“(iv) in relation to any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India, the person receiving taxable service in India”.

These provisions enabled the authorities to recover service tax in respect of services provided by a foreign person or a person from outside India. In the impugned order the Commissioner (Appeals) found that the appellants were not liable to pay service tax for services received from persons resident abroad before introduction of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. This rule introduced on 16.6.2005 recipient of service from abroad was made liable to pay service tax. In ordering that demand could not be made for an earlier period, he relied on a decision of the Tribunal in Cadbury India Ltd. Vs. CCE -2005 (188) ELT 166 (Tri. – Mum.) wherein the Tribunal had held as follows:

“After going through the submissions and the case records, we find that the period of dispute is clearly prior to amendment of Rule 2(1)(b) of the Service Tax Rules, 1994. Since only through this amendment liability to pay service tax was fastened unto a service recipient and the said amendment is prospective, the appellants cannot be made to pay any service tax for the period July 1997 to September 2001 which is prior to the amendment of the Rules. Therefore, we are of the view that impugned demand and penalty cannot be sustained”.

3.         Arguing the case of the respondents the learned counsel submits that the Hon’ble High Court of Bombay in its judgment in Indian National Shipowners Association Vs. Union of India –AIT-2008-475-HC decided taxable services received by an Indian recipient from a person resident abroad could not be subjected to tax prior to the enactment of Section 66A. Since Section 66A was introduced on 18.4.2006 much after the material period in all these cases the impugned order had to be sustained. I have heard the learned SDR for the Revenue.

4.         On a careful consideration of the facts of the case and the submissions by both sides, I find that in all these cases the respondent-assessees are limited companies based in India and had received services classifiable under BAS from persons resident abroad. They had received services of commission agents who had canvassed orders for supply of the products of the residents. I find that in the judgment of Hon’ble High Court of Bombay cited by the counsel for the respondents the Hon’ble High Court had held that “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 the Indian residents. In such cases, the Indian recipient of the taxable services is deemed to be a service provider. Before enactment of Section 66A there was no such provision in the Act and therefore the respondents had no authority to levy service tax on the members of the petitioners-association”. I find that Section 66A was enacted on 18.4.2006. The material period in the case before me is prior to 16.6.2005. Therefore, in view of the ratio of the judgment of the Hon’ble High Court of Bombay, the appeals filed by the Revenue seeking to restore demands on Indian companies for tax on services received from persons abroad are without merit. The impugned order is sustained and the appeals rejected.

(Dictated and pronounced in open court)

NF