Whether the service tax will be payable for the 'service to be provided', as the demand is for the period prior to 16-6-2005?

PJ/Case Laws/2012-13/1503

Case:- Futura Polyester Limited Vs. C.C.E. Chennai-I

Citation:-2013 (29) S.T.R. 371 (Tri. - Chennai)

Brief facts:- The appellants entered into an agreement with M/s. Futura Polymers Ltd., a 100% EOU Division for transfer of technical know-how. As per the agreement, the appellants agreed to transfer technical know-how in future and M/s. Futura Polymers Ltd., were at liberty to avail the advice of the appellants with regard to manufacture of 'Amorphous Polyester resin and solid state polymerisation of modified polyester'. A consideration was fixed in the agreement but M/s. Futura Polymers Ltd., never sought the advice of the appellants and the appellants admittedly have never rendered any service of transfer of technical know-how to M/s. Futura Polymers Ltd. But the appellants made a debit entry for the services to be provided in future, in their books of accounts and for creating entry in the books of accounts, the Revenue was of the view that the appellants are liable to service tax under the category of "Consulting Engineering Service" as per the agreement entered into between them and their client M/s. Futura Polymers Ltd. Therefore, a show-cause notice was issued and adjudication took place, demand of service tax along with penalties has been confirmed against the appellants. Aggrieved from the said order, the appellants are before us.

Appellant’s Contention:-The appellants appeared and submitted that in this case neither service has been provided by them nor any consideration for providing the service have been received by them, therefore, they are not liable to pay service tax. Further, it is submitted that the supply of technical know-how cannot be taxed under the category of "Consulting Engineering Service" as no demand is leviable, therefore, penalties imposed are also not sustainable.

Reasoning of Judgment: -The Tribunal heard both the sides and considered that the appellants have never provided any service and no consideration for the service have been received during the period. The service tax was not payable for the 'service to be provided', as the demand is for the period prior to 16-6-2005. Therefore, as held by the Tribunal in the case of Commissioner of Central Excise, Indore v. Mastermind Classes Pvt. Ltd. reported in 2010 (18) S.T.R. 53 (Tri.-Del.) the demand of tax for an earlier period prior to levy of service tax is not sustainable. Merely making entry in the books of accounts does not render that the appellants have provided any service. It has been held by the Hon'ble Apex Court in the case of Association of Leasing & Financial Service Companies v. Union of India reported on 2010 (20) S.T.R. 417 (S.C.) that when no service has been rendered, service tax cannot be levied. As held by the Apex Court in the case of Union of India v. Martin Lottery Agencies Ltd. reported in 2009 (14) S.T.R. 593 (SC). The Notification No. 19/2008 cannot be said to have retrospective effect, wherein it was explained that "deems creation of book entry" as receipt of consideration is not retrospective in nature. Further, in the case of Commissioner v. Molex (India) Ltd. reported in 2011 (24) S.T.R. J50 (Kar.), the Hon'ble High Court has held that supply of technical know-how cannot be taxed under "Consulting Engineering Service". In view of these observations, we do not find any merit in the impugned orders, as neither there is service provided nor any consideration have been received. Moreover, suppry of technical know- how cannot be taxed under "Consulting Engineering Service".

Decision:-The impugned orders are set side, and appeals are allowed with consequential relief, if any.

Comment:- The provision of service tax on “services to be provided” was introduced on 16.5.2006 and it cannot be applied for the earlier period. For the earlier period the service tax was to be levied if the services are rendered or the payment is received in advance. Hence the tribunal has rightly held the case in favour of assessee.
Secondly, the issue was of classification of service. The impugned service will not fall under consultancy engineer service. Many demands of the department was dropped on demand under wrong classification of service. Hence the negative list was introduced. But again the classification of service is re-introduced. Although it is said that it is only for the purpose of deposit of service tax but the demand has to be issued under particular classification. Hence again the purpose of negative list is lost.

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PJ/Case Laws/2012-13/1503

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