2010 (12) TMI 309 - AT - Service Tax

Service tax liability - Commercial training or coaching services - The respondent incurred expenses towards training fees for imparting commercial training to their staff outside India from overseas commercial training institute who did not have any office in India - As per board Circular No. 59/8/03 dated 20-6-03 it is clear that if the employer hires an outside coaching for imparting training to its employees and the payment thereof made by the employer to such coaching centre then the service availed by the employer shall be liable to pay service tax - In this case the coaching has been availed by the employees in their individual capacity and payment thereof made by the employees to the coaching centre directly - The employer has reimbursed the coaching fees to the employees only. Held that the employer has not made any payment to such coaching centre which is basic requirement of the Board circular to levy service tax liability - The respondents are not liable to pay service tax for the coaching availed by the employer (sic.) (employee) in their individual capacity outside India from the coaching centre.

Summary

Issues: Appeal against dropping service tax demand for commercial training services.

Analysis:
1. Issue of Liability for Service Tax on Training Fees: The case revolved around the liability of the respondent to pay service tax on expenses incurred for training fees paid to an overseas commercial training institute. The Revenue contended that the payment made by the employer for training services should be subject to service tax as per relevant legal provisions. The Commissioner (Appeals) had dropped the demand of service tax, leading to the appeal by the Revenue.

2. Legal Provisions and Interpretation: The Tribunal examined the legal provisions under Section 65 of the Finance Act, 1994, and Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. The issue was whether the services received by employees outside India, for which training fees were reimbursed by the employer, were liable for service tax. The Tribunal considered the provisions that required at least a part of the service to be rendered in India for service tax liability to apply.

3. Application of Taxation Rules: The Tribunal analyzed the Taxation of Services (Provided from Outside India) Rules, 2006, and the legal fiction created by the first proviso to Rule 3. It was highlighted that when a service is wholly performed outside India, it cannot be subjected to service tax under the Finance Act, 1994. References were made to judicial decisions emphasizing that service tax is leviable on services provided within the country, and services received abroad by employees were not liable for service tax.

4. Interpretation of Legal Authority and Precedents: The Tribunal considered the absence of legal authority for levying service tax on services received from abroad before the enactment of Section 66A of the Finance Act. Citing relevant case law, it was established that the demand for service tax for the period before the enforcement of Section 66A was not sustainable, leading to the conclusion that the penalties were also not valid.

5. Conclusion and Upholding of Impugned Order: The Tribunal concluded that the respondents were not liable to pay service tax for the coaching services availed by employees in their individual capacity outside India. It was noted that the employer had not directly paid the coaching center, as required by the Board circular for service tax liability. Therefore, the impugned order dropping the service tax demand was upheld, and the appeal by the Revenue was rejected.

In summary, the judgment focused on the interpretation of legal provisions, taxation rules, and precedents to determine the liability of the respondent for service tax on training fees paid to an overseas institute. The Tribunal ruled in favor of the respondent, holding that the services received abroad by employees were not subject to service tax, leading to the rejection of the Revenue's appeal.