Gujarat High Court Case Information System Print TAXAP/536/2011 7/ 7 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 536 of 2011 ========================================================= COMMISSIONER, CENTRAL EXCISE &CUSTOMS VADODARA-II - Appellant(s) Versus M/S GUJARAT ALKALIES & CHEMICALS LTD - Opponent(s) ========================================================= Appearance : MR RJ OZA for Appellant(s) : 1, None for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 11/11/2011 ORAL ORDER
(Per : HONOURABLE MR.JUSTICE AKIL KURESHI) Revenue is in appeal against the judgment of the Tribunal dated 8.10.2010. Following question has been presented before us for consideration :
"Whether in he facts and circumstances of the case, the Tribunal has committed substantial error of law in confirming order of the appellate commissioner to set aside demand of service tax, on services provided by the service provider, not resident of India and also not having their office in India even after 01.01.2005, when the law provides for levy of such service Tax from 01.01.2005, vide Notification NO.36/2004-ST, dated 31.12.2004 read with Rule 2(i)(d)(iv) of Service Tax Rules 1994 and when Supreme Court has upheld levy of such service tax from 01.01.2005?"
Issue pertains to levy of service tax on service provided by service provides who were not residents in India nor they have any office in India. Case of the Revenue is that by virtue of notification dated 31.12.2004, effective from 1.1.2005 and reading the same with rule 2(i)(d)(iv) of Service Tax Rules 1994, such service tax was duly authorized to be collected.
Counsel for the Revenue took us through the orders on record. We notice that the Tribunal in its impugned order relied on the decision of the Bombay High Court in the case of Indian National Shipowners Association v. Union of India, 2009 (13) S.T.R.235 (Bom.) holding that as per the statutory provisions applicable at the relevant time, service tax could not have been levied in such cases. Counsel for the Revenue stated that such decision of the Bombay High Court was carried before the Supreme Court. However, the Supreme Court dismissed the SLP and confirmed the view of the Bombay High Court.
We notice that the statutory provisions came to be materially changed by introduction of section 66A to the Finance Act which was brought into effect from April 2006 introducing a charging section for the above purpose.
We also had an occasion to deal with a similar situation in Tax Appeal No.1300 of 2010 and connected matters decided on 28.4.2011 wherein taking note of the decisions of the Bombay High Court as well as the Delhi High Court, we had confirmed the view of the Tribunal making following observations :
"Having thus heard learned Counsel for the parties and having perused orders on record, we find that undisputedly with effect from 18/04/2006 Section 66A has been introduced in Finance Act, 1994 which reads as under:
(1) Where any service specified in clause (105) of section 54 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 country other than India, and
(b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purpose of this section, be the taxable service, and such taxable service shall be treated as if the recipients had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply:
Provided that where the recipients of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply;
Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall bee treated as the country from which the service is provided or to be provided.(2)
Where a person is carrying on a business through a permanent establishment in India and through another permanent establishment in a country other than India, such permanent establishments shall be treated as separate persons for the purposes of this section."
By virtue of the said provision, a major shift in certain situation has been introduced with respect to the question of collection of service tax. We are however concerned with the period prior to 18/04/2006 when said Section 66A was not in the Statute Book.
Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994 is at the relevant time read as under:
"(iv) in relation to any taxable 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 provider does not have any office in India, the person who receives such service and has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India;"
This Rule for the period prior to 18/04/2006 and; in particular in absence of Section 66A of the Finance Act, 1994 came up for consideration before the Bombay High Court in case of Indian National Shipowners Association (Supra). Relying on the decision of the Apex Court in case of Laghu Udyog Bharti (Supra), Bombay High Court was of the opinion that before enactment of Section 66A of the Finance Act, 1994 there was no authority vested by law in the respondent to levy service tax on a person who is resident in India but who receives services outside India. It was observed that law laid down by the Apex Court in case of Laghu Udyog Bharti (Supra) is squarely applicable to Rule 2 (1) (d) (iv), which was relied by the revenue. Bombay High Court also considered the effect of explanation to Section 65 (105) of the Finance Act, 1994 which reads as under.
- 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 or 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."
However, in absence of any charging Section the Court was of the opinion that merely by virtue of provisions contained in Rule 2 (1) (d) (iv) in the Service Tax Rules, recipient of service tax could not be made liable to pay the tax. It is of course true that in the concluding portion, the Bench observed that the person who receives service outside India from a person who is non-resident cannot be made to pay service tax. To our mind, however, this is not the ratio of the decision and the entire decision is based on the ratio laid down by the Apex Court in the case of Laghu Udyog Bharti (Supra).
Bombay High Court's observations relevant for our purpose may be noted thus:
It appears that a similar provision in the rules was made applicable by the Government in relation to the Clearing Agents by making customers of the Clearing Agent liable for levy of the service tax. That question has been decided by the Supreme Court by its judgment in the case of Lagu Udyog Bharati (supra) and the Supreme Court has clearly laid down that the imposition of the service tax is on the persons rendering the services and by making a provision in the Rules, levy of tax cannot be shifted to the recipients of the services and the rule framed which brought about this situation has been declared by the Supreme Court to be invalid. The law laid down by the Supreme Court in its judgment in Laghu Udyog (supra) is squarely applicable to Rule 2 (1) (d) (iv), which is relied on in this case. It appears that it is first time when the Act was amended and Section 66A was inserted by Finance Act, 2006 w.e.f. 18-4-2006, the Respondents got legal authority to levy service tax on the recipients of the taxable service. Now, because of the enactment of Section 66A, a person who is resident in India or business in India becomes liable to be levied service tax when he receives service outside India from a person who is non-resident or is from outside India. Before enactment of Section 66A it is apparent that there was no authority vested by law in the Respondents to levy service tax on a person who is resident in India, but who receives services outside India. In that case till Section 66A was enacted a person liable was the one who rendered the services. In other words, 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."
We also notice that Delhi High Court in case of Unitech Ltd., (supra) relying on decision of the Bombay High Court in the case of Indian National Shipowners Association (Supra), deleted the tax demand from assessee who was a recipient of taxable services in the nature of architectural services from a non-resident.
In view of the above judicial pronouncement and in view of the facts on record, we do not find that the Tribunal committed any error in setting aside the service tax demand. When we find that the charging Section making service recipient liable to pay service tax, in certain circumstances was introduced by virtue of Section 66A of the Finance Act, 1994 with effect from 18/04/2006, any demand of service tax prior to the said period, merely relying on Rule 2 (1) (d) (iv) of the Service Tax Rules was wholly impermissible. Tribunal correctly ruled in favour of assessee.
Counsel for the respondent stated that even the basic fact whether the respondent receives management consultant service or not is not in dispute. Since this question does not arise for our consideration we have not adverted to the same.
In the result Tax Appeals are dismissed."
That being the position, we do not find any error in the view taken by the Tribunal. Tax Appeal is therefore dismissed.
(Akil Kureshi J.) (Ms.Sonia Gokani, J.) (vjn) Top