2006 (7) TMI 619 - HC - Service Tax

Liability of service tax - receiving the consulting Engineers service - demand from the Kerala State Electricity Board - non-resident or was from outside India - HELD THAT - We are of the considered view that as per sub-rule (1) of rule 6 as it stood prior to August 16 2002 and going by the agreement as well as the reply to the show cause notice it is clear that the service receiver is the authorised person to meet the service tax liability. Even after the amendment of the rule with effect from August 16 2002 agreement still holds good and the service receiver has taken up the responsibility of meeting the service tax liability. The question as to whether service provider has got an office in India is doubtful. According to the service receiver office was being maintained in room No. 201 Vydyuthi Bhavan of the service receiver and that is as good an office within the meaning of the amended Rules and hence service receiver has no liability. We find it difficult to accept the said contention. The mere fact that the service provider was provided with an office in the building owned by the service receiver it cannot be treated as an office or registered office of a foreign company. No materials have been produced to show that the service provider has got an independent registered office in India. In any view going by the agreement entered into between the service provider and service receiver and also the reply made by the Board it is evident that service tax liability is to be borne by the service receiver and not on the service provider. Thus we are inclined to allow this appeal and set aside the judgment of the Tribunal. The order of the assessing authority stands restored. Questions raised are answered in favour of the appellant. We are informed that the service receiver has already met the service tax liability in our view rightly. Appeal is allowed.

Summary

Issues Involved:
1. Liability of service receiver to pay service tax prior to and after the amendment of Rule 6(1) of the Service Tax Rules, 1994.
2. Definition and role of an agent or authorized person under Rule 6(1) of the Service Tax Rules, 1994.
3. Impact of the presence of an office of the service provider within the premises of the service receiver on service tax liability.
4. Legal implications of contractual agreements on service tax liability.
5. Responsibility for service tax payment when stipulated in the contract.
6. Legal escape from service tax liability through submissions not based on fact or law.
7. Definition of "office" under Rule 6(1) of the Service Tax Rules, 1994.

Detailed Analysis:

Issue 1: Liability of Service Receiver to Pay Service Tax
The court examined whether the service receiver, Kerala State Electricity Board (KSEB), was liable to pay service tax before and after the amendment of Rule 6(1) of the Service Tax Rules, 1994. It was concluded that the service receiver is liable to pay service tax both before and after the amendment, as per the contractual clauses 16.1, 16.2, and 16.3 of the agreement between KSEB and SNC Lavalin.

Issue 2: Definition and Role of Agent or Authorized Person
The court evaluated if KSEB could be considered an agent or authorized person of SNC Lavalin under Rule 6(1) of the Service Tax Rules, 1994. It was determined that KSEB, as the service receiver, acted as an authorized person responsible for meeting the service tax liability, as stipulated in the agreement.

Issue 3: Impact of Office Presence on Service Tax Liability
The court considered whether the presence of an office of SNC Lavalin within KSEB's premises affected the service receiver's liability to pay service tax. It was held that the mere provision of office space by KSEB does not constitute an independent registered office of SNC Lavalin in India, and thus, does not absolve KSEB of its tax liability.

Issue 4: Legal Implications of Contractual Agreements
The court examined the effect of the contractual agreement on the service tax liability. It was found that the agreement explicitly placed the responsibility of service tax payment on KSEB, the service receiver, and not on SNC Lavalin, the service provider.

Issue 5: Responsibility for Service Tax Payment
The court analyzed the contractual stipulations regarding tax liability. Clause 16.2 of the agreement clearly indicated that KSEB was responsible for the actual tax liability, while SNC Lavalin was responsible for filing returns and other procedural requirements.

Issue 6: Legal Escape from Service Tax Liability
The court addressed whether the parties could escape service tax liability through submissions not based on fact or law. It was concluded that KSEB could not evade its liability through such submissions, as the agreement and statutory provisions clearly placed the tax burden on the service receiver.

Issue 7: Definition of "Office" Under Rule 6(1)
The court clarified the definition of "office" under Rule 6(1) of the Service Tax Rules, 1994. It was determined that the office provided by KSEB to SNC Lavalin within KSEB's premises did not qualify as an independent registered office of the foreign company in India.

Conclusion:
The appeal was allowed, setting aside the judgment of the Tribunal. The court restored the order of the assessing authority, holding that KSEB, as the service receiver, was liable to pay the service tax. The questions raised were answered in favor of the appellant, and it was noted that KSEB had already met the service tax liability.