Custom, Excise & Service Tax Tribunal
M/S. Dr. Reddy S Laboratories Ltd vs Cce, Hyderabad on 13 May, 2010
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing:13/05/2010
Date of decision:13/05/2010
Appeal No.ST/114/09
(Arising out of Order-in-original No.27/2008-ST dt. 28/11/2008
passed by CC,CE&ST, Hyderabad)
For approval and signature:
Honble Mr. M.V.Ravindran, Member(Judicial)
Honble Mr. P.Karthikeyan, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
No
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
M/s. Dr. Reddys Laboratories Ltd.
..Appellant(s)
Vs.
CCE, Hyderabad
..Respondent(s)
Appearance Ms. Tejasvi Hari Krishna, Advocates for the appellant.
Mr. M.M.Ravi Rajendran, JDR for the Revenue.
Coram:
Honble Mr. M.V.Ravindran, Member(Judicial) Honble Mr. P.Karthikeyan, Member(Technical) FINAL ORDER No._______________________2010 Per M.V.Ravindran This appeal is directed against the Order-in-original No.27/2008-ST dt. 28/11/2008.
2. The relevant facts that arise for consideration are that on verification of accounts for the financial years 2003-04, 2004-05 and 2005 it has been revealed that the assessee have paid an amount of Rs.28,72,44,7691- to the Foreign companies towards receipts of the services of Scientific And Technical Consultancy, Business Auxiliary Services Intellectual Property Services Other Than Copyright, Test, Inspection, Certification and Manpower Recruitment Agency. As per Rule 2(1)(d)(iv) of the Service Tax Rules 1994 w.e.f 16.08.2002 person liable for paying the service tax means in relation to any taxable service provided by a person who is a non- resident or is from outside India, does not have any office in India, the person receiving taxable service in India The Central Government under Sub-Section (2) of Section 68 of the Finance Act, 1994, had issued Notification No:36/2004-Service Tax dated:3 1.12.2004, notifying the taxable services provided by a foreign service provider as a taxable service under Clause (B) of the said Notification. Clause (B) of Notification No.36/2004- Service Tax dated 31.12.2004 defines the taxable service as - any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India. In other words, the liability to pay the Service tax had been fastened upon the service recipient in India, w.e.f 16.08.2002 in case of import of services, in terms of Rule 2 (1) (d) (iv) of the Service Tax Rules, 1994. Further, the Rule 2(1) (d) (iv) of the Service Tax Rules, 1994 was amended w.e.f 16.06.2005 as under-
Person liable for paying the service tax means 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
3. Based upon the above reproduced facts, show cause notice dt. 18/4/2008 was issued to the appellant directing them to show case as to why they being recipient of the services, from a person who is situated abroad, be not liable to pay service tax as per the provisions of Rule 2(1)(d) of Service Tax Rules, 1994 as amended w.e.f. 16/6/2005. The appellants resisted the show cause notice on various grounds, mainly on the ground that they being the recipient of the services, the service tax liability, if any, on them would be leviable only from 18/4/2006, on which date provisions of Section 66A were brought into statute. For this purpose they relied on various decisions. The adjudicating authority after granting an opportunity of personal hearing and considering the submissions made during the personal hearing and reply to the show cause notice, came to the conclusion that the appellant is liable to pay the service tax as demanded under the show cause notice as recipient of the services by virtue of provisions of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. Coming to such conclusion, he confirmed the demand as ordered as under:-
4. Ld. Counsel appearing on behalf of the appellant submits that the entire issue is regarding the service tax liability of the appellant as a recipient of the services. It is her submission that the judgment of the Honble High Court of Bombay in the case of India National Shipowners Association Vs. UOI & others as reported at 2009(13) STR235 (Bom.) clearly settles the law in the favour of the appellant. She would draw our attention to the paragraphs 17, 20 & 21 of the said judgment. It is the submission that against the said judgment of the Honble High Court, a Special Leave petition was filed by the Revenue before the Apex Court and Apex Court on 14/12/2009 dismissed the SLP, as reported at 2010(17) STR J57(SC).
5. Ld. DR on the other hand submits that the provisions of Rule 2(1)(d)(iv) were applicable and hence lower authorities were correct in confirming the demands raised against the appellant.
6. We have considered the submissions made by both sides and perused the records.
7. In this case, it is undisputed that the service tax as confirmed and ordered by the adjudicating authority (as reproduced herein above in para No.3) is due to the findings that the appellant being recipient of services, is liable to discharge the service tax liability. It is also undisputed that the entire period of demand of service tax is prior to 18/4/2006.
8. We are in agreement with the contentions raised by the ld. Counsel that the demand of the service tax prior to 18/4/2006 could not be raised on them as the ratio of the judgment of the Honble High Court Judicature at Mumbai in the case of Indian National Shipowners Association (supra) is their favour. The ratio as laid down by the Honble High Court and upheld by the Apex Court is as under:-
17.?Reliance is placed on the provisions of Rule 2(1)(d)(iv) quoted above for justifying the levy of service tax for the period from 16-8-2002. Perusal of the above quoted Rule 2(d)(iv) shows that by that provision a person liable for paying the service tax was defined to mean in relation to any taxable service provided by a person who is non-resident or is from outside India to a person receiving taxable service in India. Apart from the fact that this rule is contrary to the provisions of Section 68 and other provisions of the Act, under this provision the recipient of the service became liable for paying the service tax provided the service was received in India. The entire case of the Petitioners is in relation to the service received by the vessels and ships owned by the members of the Petitioner-association outside India. Therefore, it cannot be said that on the basis of Rule 2(1)(d)(iv), service tax can be levied on the members of the Petitioners-association. It is further to be seen here that Section 64 gives powers to the Central Government to make rules for carrying out the provisions of the Chapter. The chapter relates to taxing the services which are provided, the taxing on the value of the service and it is only the person who is providing the service can be regarded as an assessee. The rules therefore, cannot be so framed as not to carry the purpose of the Chapter and cannot be conflicted with the provisions in Chapter V of the Act. In other words, as the Act makes the person who is providing the service liable, the provisions in the Rules cannot be made which makes the recipient of the service liable. It is, thus, clear that the provisions of Rule 2(1)(d)(iv) are clearly invalid.
18 . .
19 . ..
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 Laghu 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.
9. Accordingly, in view of the law settled, we are of the considered view that the impugned order is not sustainable and hence, we set aside the same. Impugned order is set aside and the appeal is allowed with consequential relief, if any.
(Operative portion of this order pronounced on conclusion of the hearing) (P.KARTHIKEYAN) Member (Technical) (M.V. RAVINDRAN) Member (Judicial) Nr ??
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