ORDER
T.V. Sairam, Member (T)
1. M/s Jubilant Organosys Ltd., formerly M/s Vam Organic Chemicals Ltd., have factories manufacturing chemicals located at different places including one at Gajraula. The dispute relates to confirmation w liability of service tax, between April 1999 and August 2002 (16.08.2002), as in Commissioner (Appeals)’s order dated 28.04.2005 which has confirmed the liability of service.
2. On 16.08,2002, Service Tax Rules 1994 underwent certain far-reaching amendments, A new Clause (iv) came to occupy in the Service Tax Rules 1994 in Clause (d) Sub rule 1 of Rule 2 :
(iv) In relation to any taxable service provided by a person who is a non resident or he is from outside India, does not have any office in India, the person receiving taxable service in India.
This charge heralded a novel concept in fiscal procedures by shifting the conventional burden of tax liability from the shoulders of a (foreign) service-provider to the (local) service recipient.
3. The show cause notice dated 04.05.2004, which was the starting point of the present issue alleged that the appellants were receiving “consulting engineer services” from their foreign collaborators. It was also alleged that they had also availed the ”scientific or technical consultancy services” between the period 01.04,99 and 31.03.2003. The notice apart from contemplating demand of Rs. 16,68,650/- also envisaged invoking of penal and interest provisions under the Finance Act 1994. The case was adjudicated by the Assistant Commissioner who reduced the quantum of demand to Rs. 11,91,150/-, imposed penalty and charged interest. When the matter was taken up before the Commissioner (Appeals), the appellants raised the following two issues:
(i) Whether the appellants were liable to pay service tax on payments made to their service providers prior to the amendment of Service Tax Rules 1994 i.e. prior to 16.8.2002 and
(ii) Whether the appellants are liable to pay the same after the above said amendment for its Gajraula premises, as they had many units all over the country.
The learned Commissioner (Appeals) vide his order dated 28.4.2005 held that the appellants are liable to pay service tax during the period prior to the amendment. However, as regards point (ii) above the Commissioner (Appeals) agreed with the appellants that demand cannot be made for their Gajraula factory, as no services have been rendered there. He observed:
Under the provisions of the Service Tax Rules 1994, they are liable to pay the duty at Noida where they have a centralized accounting system. Commissioner Noida may like to look into this aspect if he so deems fit, for which a copy of this order is being endorsed to him .
4. The main reason for deciding that the appellants were liable to pay service tax during the period prior to amendment was drawn by the Commissioner (Appeals) from the agreement entered into by them, where “a clear cut onus” was cast on them that they shall bear all taxes and levies of any kind as may be levied in India in respect of the agreement. These provisions were equated with an “authorization” made by their foreign collaborator.
5. Being aggrieved by this Order-in-Appeal the appellants have filed the present appeal. The major grounds contended are :
(i) The amendments made to Service Tax Rules 1994 on 16th day of August 2002 are applicable only prospectively and not retrospectively. They have contended that the Commissioner has incorrectly held that they were authorised by the service provider to pay service tax on their behalf. According to them the Commissioner has wrongly interpreted the terms of the agreement related to tax. This agreement would neither relate to the taxes that would be applicable on account of changes in tax laws nor did they authorise the appellant to pay service lax on their behalf strictly in terms of the provision to Rule 6 of Service Tax Rules.
6. The learned Authorised Deptt. Representative (ADR) reiterates the underlying ratio of the impugned order. Having heard both sides and perusing records, it is noticed that prior to 16.08.2002 the relevant provisions under service tax rules on the liability of service recipient of the foreign service providers read as follows:
Provided further that in the case of a person who is a non resident or he is from outside India does not have any office in India and is liable to pay service tax on taxable services provided in India The service tax thereon shall be paid by such person or on his behalf by any other person authorised by him…
7. A plain reading of this proviso would make it clear that there is no binding absolutely on the service recipient to act on behalf of his foreign service provider unless authorised by the latter. Though the Commissioner (Appeals) as held that, certain clauses in the agreement can be treated as an authorization and thereby burdening the appellant on the tax liability of his service provider, we do not see eye to eye with such an interpretation. No explicit direction or authorization for payment of service tax strictly in terms of the proviso (2) to Rule 6 of Service Tax Rules on behalf of the service provider is forthcoming in the said agreement. In other words, the agreement, as contended by the appellants, would not related to those taxes that would be applicable on account of changes in tax laws.
8. With regard to the second issue, whether the appellants are liable to pay for Gajraula premises, the learned Counsel for the appellant states that they are not challenging the decision/observation of the Commissioner (Appeals) in this regard. Needless to say that if the Commissioner, Noida takes up the issue on the basis of the observation made in the impugned order, he shall decide the same in accordance with law after hearing the concerned parties.
10, In the result, we set aside the impugned order of the Commissioner (Appeals) accordingly on the aforesaid limited extent and appeal is partly allowed.
[Pronounced and dictated in the open Court]