PJ/CASE STUDY/2011-12/23

07 September 2011

For receiving the service from abroad from service providers not having office/establishment in India

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PJ/Case Study/2011-12/23

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CASE STUDY

Prepared By:

CA Pradeep Jain
Sukhvinder Kaur LLB [FYIC]
And Megha Jain, B. Com

Introduction:-

For receiving the service from abroad from service providers not having office/establishment in India, the liability to pay the service tax on the said service has been fastened on the service recipient located in India. The Notification No. 36/2004-ST dated 31.12.2004 under Section 68 (2) of the Finance Act, 1994 readwith Rule 2(1) (d)(iv) of the service tax Rules, 1994 has provided that service tax liability on services received in India from a non-resident arises w.e.f 01.01.2005.

The Section 66A of the Finance Act, 1994 which is the section making service recipient liable to pay service tax was made effective from 18.04.2006 onwards. Thus, the reverse charge method was introduced from 18.04.2006. Therefore, the issue arose that whether the liability on the service recipient will be from 01.01.2005 onwards or from 18.04.2006 onwards. In the case of appellant in the case under study, the demand of service tax was being raised from 01.01.2005 onwards. The Stay application alongwith Appeal has been filed before the Learned Commissioner (Appeal).

M/s Alcobex metals Ltd v/s Additional Commissioner, C. Ex. Division, Jodhpur
[Stay Order no. 108 (CB)ST/JPR-II/2011, Dated: 23.08.2011]

Brief Facts:-

- Appellant-assessee are engaged in manufacture of brass, copper tubes and rods, etc. We are also registered under Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 for Goods Transport Agency, BAS, Foreign consultancy and foreign engineering services.

- During the period from 01.01.2005 to 31.08.2006 appellant have received services from commission agent, consulting engineer, advertisement and business exhibition service from overseas persons, who did not have any establishment in India.

- Department alleged that in terms of Section 66A of the Finance Act, 1994, the appellants were liable to pay service tax alongwith interest. Show cause notice was issued to the appellant.

- The Adjudicating Authority the order-in-original 89/ST/2011, Dated: 26.06.2011 passed by Additional Commissioner under which demand of service tax amounting to Rs. 1634709/- was confirmed u/s 73 of the Act along with interest u/s 75 of the Act. However, no penalty under Section 76, 77 and 78 ibid was imposed on the appellant.

- Aggrieved by the demand of Service tax with interest, appellant have filed appeal alongwith stay application before the learned Commissioner (Appeal).

Assessee’s Contentions:-

Assessee made following submissions before the Commissioner (Appeal) for grant of Stay:

- That they have applied for service tax registration amendment immediately and have also paid the service tax on the same along with interest. We have also filed the service tax registration for the same period.

- Appellant submitted that the Hon’ble High Court in the case of Indian National Shipowners Association reported at 2009 (13) STR 235 (Bom)] held that the ““Recipient in India liable to service tax for service received from abroad only from 18.04.2006” and this was upheld by Hon’ble Supreme Court [2010 (17) STR J-57(SC)]. It clearly shows that it is a prima facie case in our favour and as such the stay should be granted to us. The Apex Court has held that the service tax is not payable before 18.4.2006.

- It was also submitted that the appellant have filed the return suo moto to range office on 24.11.2006 for the period October-2004 to March-2006 and it is clearly mentioned under ST-3 return the service received from outside India under category of Service of Business Auxiliary Service & other. Thereafter, the Show Cause notice was issued to them for late filing of return and imposed the token penalty. It is clearly shown that the matter was within the knowledge by the department but show cause notice was issued after one year. The extended period is not invokable in appellant’s case. The time limit of one year is applicable in their case. But the learned Adjudicating Authority has not considered to our point and confirmed the demand.

- It was further submitted that appellant’s unit has been closed and company is registered under BIFR. The appellant are, in particular, facing the crucial position. As such, unconditional stay should be granted to them.

Reasoning of the Commissioner (Appeal):-

The Learned Commissioner (Appeal) held that as the appellant had received services from commission agent, consulting engineer, advertisement and business exhibition service from overseas persons, who did not have any establishment in India, therefore, in terms of Section 66A of the Finance Act, 1994 read with Notification No. 36/2001-ST dated 31.12.2004 and Rule 2 (1) (d) (iv) of Service tax Rules, 1994, the appellant were liable to pay service tax as service provider.

The Learned Commissioner (Appeal) found that the Hon’ble High Court in the case of Indian National Ship Owners Association [2009 (13) STR 235 (Bom.)] has held that “Recipient in India liable to service tax for service received from abroad only from 18.04.2006” and this was upheld by Hon’ble Supreme Court [2010 (17) STR J-57(SC)].

It was held that in view of the financial hardship of the appellant, stay of recovery of Service tax alongwith interest was granted till disposal of the appeal.

Decision of the Adjudicating Authority:-

Stay Application allowed.

Conclusion:-

In the case of Indian National Shipowners Association case, the Hon’ble Bombay High Court had held that the service tax liability on the service recipient in case of service received from abroad will be from 18.04.2006 and this has been upheld by the Hon’ble Supreme Court. Therefore, as the issue involved in the case of the appellant was also the same, the learned Commissioner (Appeal) has rightly relied upon the Bombay High Court judgment and granted stay to the appellant-assessee.

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07 September 2011

CASE STUDY

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