Whether the service tax demand under reverse charge mechanism for the services received from outside India which comes into effect prior to 18.04.2006 is sustainable?

PJ/CASE LAW/2015-16/2669

Case-Unitech Machines Ltd. VersusCommissioner Of Central Excise, Meerut-I

Citation-2015 (37) S.T.R. 335 (Tri. - Del.)

Brief Facts-The appellants had entered into technical assistance agreement with M/s Thai Stanley Electric Public Company Ltd., Thailand with head office in Thailand for providing technical advice and instructions so that the appellants’ would be able to manufacture auto parts for Hero Honda Company with satisfactory quality. The appellants paid Rs. 35,20,000/- during the period 2004-2005 as technical knowhow fees in foreign currency to the aforesaid Thai Company. Vide aforesaid order-in-original the adjudicating authority held that the service received by the appellants fell under Consulting Engineering Service and the appellants were liable to pay service tax for receiving service from outside India. The adjudicating authority also held that as this was detected at the time of audit and the appellants did not disclose this vital fact, they were guilty of wilful mis-statement/suppression with intention to evade service tax and thereby invoked the extended period. The appellate authority vide the impugned order upheld the order-in-original.
Appelants Contention-No one appeared on behalf of the appellants

Respondents Contention-The ld. AR conceded that the reverse charge mechanism was without any legal basis prior to 18-4-2006.

Reasoning Of Judgement-In view of the foregoing and having regard to the fact that Section 66A of the Finance Act, 1994 giving the authority to charge service tax from the service recipient in case of receipt of service from outside India came into effect from 18.4.2006 and the period involved in this case is prior thereto, the demand confirmed cannot survive. The issue is no longer res integra to warrant elaborate discussion. It is nonetheless dismaying to note that neither the Show Cause Notice nor the order-in-original/order-in-appeal even remotely mention the legal provision under which the recipients of service (i.e. the appellants) were liable to pay the impugned tax; a flaw which by itself could arguably be fatal .The impugned order thus being unsustainable is quashed and the appellants’ appeal allowed.
Decision-Appeal party allowed

Comment-The crux of the case is that according to Sec 66 A of finance act, 1994 when receipt of services is from outside India then there is a provision which came into effect from 18.04.2006 to charge service tax from service recipient. But,if the period mentioned is prior to 18.04.2006 ,then the demand of service tax made under reverse charge mechanism would not be sustainable.

Prepared By-Neelam Jain

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PJ/CASE LAW/2015-16/2669

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