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TAXAP/536/2011 7/ 7 ORDER
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 536 of 2011
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COMMISSIONER,
CENTRAL EXCISE &CUSTOMS VADODARA-II - Appellant(s)
Versus
M/S
GUJARAT ALKALIES & CHEMICALS LTD - Opponent(s)
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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:
“66A.
(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.
“Explanation
– 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:
“20.
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)
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