2010 (10) TMI 313 - AT - Service Tax

Under sections 76 77 and 78 - The appellant is a company incorporated under the law of Denmark having its principal office at Nymollevej 55 P.O. Box 213. DK - 2800 Lyngby Copenhagen Denmark - It had entered into an agreement No. IOCL/SEEC/004 dated 20-9-2000 with M/s. IOCL under which it has to supply know-how PSA Unit know-how Process Package PSA Unit Process Package Services for Hydrogen Plant and Detailed Engineering of Reformer Package to IOCL in the form of technical documentation - The activities were performed outside India and the appellant had provided the technical information to the officials of IOCL at their office in Denmark only- The appellant received two identical show-cause notices from the Deputy Commissioner of Central Excise and Customs Division-III Vadodara-I in which he proposed to levy service tax along with interest and penalty on the ground that the appellant had rendered taxable service under the category of consulting engineer s service to IOCL Show-cause notices had been issued to both the appellant (service provider) as well as IOCL the service receiver - The Commissioner has held that IOCL was not liable to pay service tax in view of the absence of statutory provision making the service receiver liable to pay was not in existence - Also taken note of the clause of the agreement providing for payment of service tax by M/s. IOCL and of payment of interest and penalties levied on HTAS by Indian Tax authorities is to be paid by M/s. IOCL but held that it is for the parties to enforce the contract and such a clause cannot do away with the liability of HTAS on this account - The decision of Hon ble Supreme Court or the Hon ble High Court of Kerala was not available during relevant time the issue needs to be reconsidered by the Commissioner - The fact that the decisions in the case of Indian Farmers Fertilizers Co-operative Ltd. All India Federation of Tax Practitioners were also not available and the other decision cited by the learned advocate were also not available during the relevant period Thus set aside the impugned order and remand the matter to the Commissioner for fresh adjudication after giving the concerned parties fresh opportunity to present their case.

Summary

Issues:
1. Taxability of services provided by a foreign company to an Indian entity under the category of consulting engineer's service.
2. Liability to pay service tax on the foreign company or the Indian recipient.
3. Taxability of services rendered outside India.
4. Interpretation of engineering consultancy service under the Finance Act, 1994.
5. Justification for the levy of penalties.

Issue 1: Taxability of services provided by a foreign company:
The appellant, a Danish company, entered into an agreement with an Indian entity to supply technical documentation and know-how. The Commissioner imposed service tax on the appellant under the category of consulting engineer's service. The appellant contended that the activities were not taxable as no amount was received for technical assistance in India. Citing precedents, the appellant argued that the supply of know-how as intellectual property was not taxable as consulting engineer's service.

Issue 2: Liability to pay service tax:
The appellant argued that since it did not have an office in India, the liability to pay service tax rested with the Indian recipient, as per the Supreme Court's decision in Kerala State Electricity Board v. CCE. The appellant maintained that it was not required to pay service tax as it did not have an office in India.

Issue 3: Taxability of services rendered outside India:
The appellant contended that since the services were performed outside India, they were not liable to pay tax in India. Citing the All India Federation of Tax Practitioners case, the appellant argued that service tax is leviable only on services in India. The appellant highlighted that the provision for taxability of import of service under reverse charge mechanism was inserted after the relevant period.

Issue 4: Interpretation of engineering consultancy service:
The appellant challenged the Commissioner's interpretation of engineering consultancy service under the Finance Act, 1994. The appellant argued that the agreement was for exploiting intellectual property, not for providing a service. The appellant emphasized that the consideration paid for the engineering design package amounted to the sale of goods, not the rendering of a service.

Issue 5: Justification for the levy of penalties:
The appellant contended that there was no justification for the levy of any penalties. The appellant argued that the Commissioner had wrongly imposed penalties without legal basis. The appellant sought relief from the penalties imposed along with the service tax.

In the judgment, the Tribunal noted that the decision of the Supreme Court in the Kerala State Electricity Board case was not considered by the Commissioner. The Tribunal highlighted the liability of the service provider and receiver as discussed in the Kerala State Electricity Board case. The Tribunal emphasized that the liability to pay service tax was on the service receiver, as per the Supreme Court's findings.

The Tribunal set aside the impugned order and remanded the matter to the Commissioner for fresh adjudication. The Tribunal directed the Commissioner to reconsider the issues of taxability, liability to pay service tax, and penalties in light of the relevant legal precedents and decisions that were not available during the previous adjudication. The Tribunal clarified that it did not delve into the merits of the case but emphasized the need for a fresh examination based on the legal principles discussed.