Customs, Excise and Gold Tribunal - Delhi
Cce vs Motherson Sumi Systems Ltd. on 14 October, 2005
Equivalent citations: 2006(107)ECC77, 2006ECR77(TRI.-DELHI), 2006[1]S.T.R.307
ORDER K.C. Mamgain, Member (T)
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1. This appeal is filed by the Revenue against the order of Commissioner (Appeals).
2. The facts in brief are that: M/s. Mother son Sumi Systems Ltd., Noida (hereinafter referred to as "MSSL") during the period 1999-2000 to 2000-2001 paid technical assistance fees/service charges for services received by them from M/s. Sumi Tomo Wiring Systems Ltd., Japan (hereinafter referred to as "STWSL" under the category of "Management Consultancy" and "Consulting Engineer". M/s. MSSL also paid Royalty/Service Charges for services received from M/s. STWSL, Japan under the category of "Consulting Engineer", on which, service charge was paid to the government either by M/s. MSSL or by M/s. STWSL, Japan. Therefore, show cause notice was issued to M/s. MSSL and M/s. STWSL for recovery of the service tax. The show cause notice was adjudicated by the Deputy Commissioner of Central Excise, Noida, who confirmed payment of Rs. 16,05,850 under the provisions of Section 73A of the Finance Act 1994 against M/s. MSSL. He also imposed a penalty on M/s. MSSL and demanded interest on the service tax short paid. The appeal filed by M/s. MSSL was allowed by the Commissioner (Appeals), Noida. Therefore, the Revenue filed the present appeal against the order of the Commissioner (Appeals).
3. It was pleaded that prior to 11th August, 2002 service tax was payable by authorized representative of the foreign service provider and not by the service receiver. Only after the amendment of the Service Tax Rules from 16th August, 2002, the recipient of the services, became liable for payment of service tax, if the services are provided by foreign person. Since, in the present case the service was provided by the foreign person and such person has not appointed any authorized representative for payment of service tax, the recipient of the service cannot be held liable for service tax. Reliance was placed on the tribunal's decision in the case of (1) Bajaj Auto Ltd. v. CCE, Aurangabad , wherein it was held that non resident/person out side India providing service in India, tax cannot be recovered from service receiver in India as the same person cannot be both client and agent, and amendment to Rule 2 of Service Tax Rules 1994 by insertion of Clause (iv) for payment of tax by service receiver in India had only prospective effect; and (2) Moser Baer India Ltd. v. CCE, India Final Order No. 706/2005-ST(PB) in Appeal No. ST/25/2005 A dated 1st July, 2005, wherein it was held that prior to amendment of Rule 6, the liability of service tax period prior to the amendment, no liability arises, since, appellant was not appointed as the authorized agent of the service provider.
4. The Revenue in their grounds of appeal has taken the plea that Article 26 of the agreement between the service provider and receipt in of the service, provides for deduction of withholding tax in India. The agreement has to be read in proper spirit.
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5. We have considered the submissions made by both sides. We find that Article 9.1 of the technical assistance agreement does not throw any light on the payment of service tax by the respondents. Article 26 of the agreement provides that all questions arising out of this agreement shall be governed by and interpreted in accordance with the laws of Republic of India. We find that the Commissioner (Appeals) in para 8 to 12 of his order, which is reproduced below, has given sound reasoning for allowing the appeal of M/s. MSSL:
8. In this context, I find that the impugned order relates to the service tax for the year 1999-2000 and 2000-01. The "technical assistance agreement (Extension)" dated 20th December. 2001 effective from the date of execution between M/s. SWS Japan and the appellants is not relevant for the instant case as it relates to the period earlier to 20th December. 2001. Likewise provisions of Rule 2(1)(d)(iv) of Service Tax Rules 1994 inserted with effect from 1608.2002 by Notification No. 12/2002-ST dt. 1st August, 2002, interalia, providing for service tax liability on the person receiving taxable service in India, are not applicable to the instance case.
9. Proviso to Rule 6(1) of Service Tax Rules, inserted vide Notification No. 1/99-ST dated 28th February, 1999 provides that "in the case of a person who is a non-resident or is from outside India, does not have any office in India and is liable to pay service tax on taxable services in India;
(1) the service tax thereon shall be paid by such person or on his behalf by any other person authorised by him, who shall submit to the Commissioner of Central Excise, in whose jurisdiction, the taxable services have been rendered, a return containing the following detail....
10. From the aforesaid, I find that during the period 28th February, 1999 to 16th August, 2000, when the above proviso to Rule 6(1) ibid was omitted by Notification No. 12/2002-ST dt. 1st August, 2002 effective from 16th August, 2002, by virtue of Rule 6(1) proviso (i), a person who was a non-resident or was from outside India, not having any office in India, could either himself pay the service tax on taxable services or could authorise any other person to discharge his service tax liability. The issue that needs to be determined in the first instance is whether under the "technical assistant agreement" (effective at the relevant time) between the appellants and M/s. SWS Japan, the service provider, the said M/s. SWS Japan had authorize the appellants to discharge their service tax liability.
11. Article 9.1 of the "technical assistant agreement" in force at the relevant time, inter alia, read as under:
(a) The above payment of royalty would be made on a semi annual basis of that year, ending on 30th June and 31st December, with each payment to be made within 60 days after the close of each semi-annual period, after deduction of appropriate withholding tax in India.
(b) A lump sum fee of Japanese yen 2.50 Crores, subject to deduction of taxes at source according to the Schedule to be paid....
Page 81 Article 26 of the agreement provided "Thus agreement and all questions arising out of under this agreement shall be governed by any interpreted in accordance with the laws of Republic of India".
12. I observe that Article 9.1(a) of the said agreement provided for deduction of withholding tax in India. Withholding tax refers to income taxation and this article cannot be interpreted have authorised the appellant to pay service tax on behalf of the service provider, M/s. SWS Japan. Article 26 of the agreement provided that all questions arising out of under this agreement shall be governed and interpreted in accordance with the laws of Republic of India. This article too cannot be said to have placed a burden on the appellants to pay service tax, which primarily is a burden on the service provider.
6. In view of the reasoning given by the learned Commissioner (Appeals), we find no merit in the appeal of Revenue and the same is rejected.
(Dictated & pronounced in the open Court).