Customs, Excise and Gold Tribunal - Bangalore
Kerala State Electricity Board vs C.C.E. on 23 February, 2005
Equivalent citations: 2005(187)ELT111(TRI-BANG), 2006[3]S.T.R.593
ORDER Moheb Ali M., Member (T)
1. This is an appeal against the Order of the Commissioner (Appeals) who in the impugned order, while confirming the order of the lower authority held that M/s. Kerala State Electricity Board (K.S.E.B.), the appellants are liable to pay service tax for the services rendered by a foreign firm, M/s. SNC Lavalin, Montreal, Canada, as a consulting engineer. He also confirmed to penalty imposed by the lower authority. Hence this appeal.
2. Heard both sides.
3. Services rendered by a consulting engineer were brought into service tax net with effect from 7-7-97. There is no dispute that the above named foreign company provided consulting engineering services to the appellant. The period of dispute is August 1998 to September 2002. We are not going into the various services provided by the foreigner. Suffice it to say that they fall in the category of taxable service under Finance Act, 1994.
4. The agreement entered into between the parties clearly provides in the contract for Consultants Services in Clause 7.5 :-
"All rates prices and amounts stated in the contract as submitted for payment to K.S.E.B. are not of all Indian taxes/duties/levies and shall be paid to the Canadian parties in full...K.S.E.B. will provide certificates of payment of all taxes."
At this stage, it is useful to refer to proviso to Sub-rule (1) of Rule 6 of the Service Tax Rules as it stood prior to 16-8-2002. It says that in case of a person who is non-resident Indian or from outside India and does not have an office in India, the service tax due on the services rendered by him should be paid by his agent or on his behalf any other person authorised by him. The lower appellate authority held that K.S.E.B. is liable to pay service tax for the service rendered by M/s. SNC Lavalin. He rejected the contention of the appellants that M/s. SNC Lavalin had an office in India, implying thereby that service tax has to be paid by K.S.E.B. He did not seem to notice that the liability to service tax in such a situation prior to 1-8-2002 was different. We will refer to this later.
5. This Tribunal in its Order No. A/1623/WZB/2004/CI, dated 6-10-2004 has extensively dealt with the same issue. The correct interpretation of Rule 6 of S.T. Rules would result in holding that in the case of foreigners who render service in India and who do not have an office in India, S.T. is payable by the agent or by any authorised person on behalf of the foreigner/NRI. The Rule as it stood prior to 16-8-2002 envisages three persons, i.e. the service provider, his agent or authorised person and the service receiver. In the present case, K.S.E.B. cannot be considered as an agent of SNC Lavelin, Canada for the simple reason that the former is a service receiver not an agent of the foreign company. K.S.E.B. also cannot be considered as an authorised person on behalf of the foreign company for the reason that K.S.E.B. does not represent the foreign company in India. K.S.E.B. merely discharges tax liabilities accruing out of the payments made to the foreign company in terms of the payment terms enumerated in the contract. Tax deductions at source is prescribed under Income-tax Act whereas no such condition to deduct tax at source exists into Service Tax Rules. The basis for determining the tax liability on the service receiver, i.e. K.S.E.B. itself is wrong as he is neither an agent nor an authorised person and the service provider.
6. The Rule was amended with effect from 16-8-2002 whereby it was brought out that in respect of foreign firms/consultants, etc. who render services from abroad and who do not have an office in India, service tax has to be discharged by the person who received the service from the foreigner. In the present case, the appellants, K.S.E.B. are the receivers of service rendered by a foreign firm, and would therefore be liable to discharge the tax liability provided the foreign service provider does not have an office in India. The Department's contention is that the foreign firm did not have an office in India and therefore the service receiver should discharge the tax liability from 16-8-2002 at least. We have perused the agreement entered into between the parties. As per Annexure F of the contract, K.S.E.B. is obliged to provide the following facilities as a client of the service provider. They are, office facilities, office support staff, housing and furnishing, transportation, medical care, etc. The appellant is therefore providing various facilities to the foreign service provider as a client. Further, we observe that under contract for consultants' services, one of the responsibilities of K.S.E.B. is [Sub-clause (i) of Clause 6] to provide air-conditioned office to the personnel of SNC Lavalin with security, technical, secretarial and administrative support staff services, etc. Thus under the contract, K.S.E.B. provides all facilities for the benefit of the foreign service provider. It is foreign service provider's office as the clause refers to 'SNC Lavalin Personnel'. Such an office cannot be held to be the office of K.S.E.B. just to demand service tax from the appellant after 16-8-2002. The demand should have been made on SNC Lavalin, the service provider who has an office in India instead of on K.S.E.B. holding that the foreign service provider has no office in India.
7. Thus we observe that prior to 16-8-2002, service tax cannot be demanded from the appellant as he is not held to be an agent/authorised person of foreign service provider and after 16-8-2002 amendment, the appellant is not required to pay the tax as the foreign service provider has his office here in India. Only in cases where the service provider has no office in India/has no agent, etc., a service receiver is required to discharge service tax liability.
8. The appeal is allowed. The order of the Commissioner (Appeals) is set aside.
(Operative portion of the order has been pronounced in the Court on completion of hearing on 23-2-2005)