WHAT IS THE LIABILITY OF SERVICE TAX ON RECEIPT OF SERVICE FROM OVERSEAS ?

There are certain exporters who take services of Overseas Agents and in turn pay commission to them. Such exporters become liable to pay Service Tax on reverse charge method on import of service. Various Commissionerates of the Service Tax department have raised such demands for the period from 1.01.2005 or even earlier. Now the CBEC has decided to levy service tax only with effect from 18.04.2006 (i.e.) from the date of enactment of section 66-A of the Finance Act, 1994. Hence, any demand of service tax on the amount paid to Overseas Agencies prior to 18.04.2006 will not be maintainable and hence, this fact may be taken to the notice of the authorities and accordingly, the demands may be closed as such. Following instructions have been issued by the Board office to the offices of all Chief Commissioners and Commissioners of Central Excise and Service Tax which may kindly be perused.

To,

  • All the Chief Commissioner of Central Excise/LTU
  • All Commissioner of Central Excise/Service Tax the Chief Commissioner of Central Excise/LTU

Sir/Madam,

Sub: Applicability of service tax on taxable services provided by a non-resident or a person located outside India to a recipient in India-reg.

Kind attention is invited to instruction F No. 275/7/2010-CX8A, dated 30.6.2010, wherein the Board had communicated its view that services tax on a taxable service received in India, when provided by a non-resident/person located outside India, would be applicable on reverse charge basis with effect from 1.1.2005, and that the ratio of judgement in M/s Indian National Shipowners Association (INSA) case [2009 (13) STR 235 (Bom)] would not apply to such cases. Further, direction was issued to field formations to defend the levy of service tax on such services for the period on or after 1.1.2005, as post INSA judgment, it has been held by the High Courts/Tribunal in a large number of cases, applying ratio thereof, that service tax on such services is leviable only w.e.f. 18.4.2006. However, the appeals filed by the department before the Hon'ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005, have been dismissed recently (subsequent to the issuance of said instruction dated 30.6.2010) in the following cases.

 

  • SLP (C) No. 29539 of 2010 in CCE Vs Bhandari Hosiery Exports Ltd
  • SLP (C)No. 18160 of 2010 in CST Vs Unitech Ltd
  • SLP (C) No. 34208/09 of 2010 in UOI Vs S R Batliboi & Co.
  • SLP (C)No. 328/332 of 2011 in UOI Vs Ernst & Young
  • SLP (C) No. 25687-25688/2011 in CCE Vs Needle Industries
  • SLP (C) No. 25689-25690/2011 in UOI Vs SKM Engg Products

Further, Review Petition No. 1686 of 2011 filed in the case of Bhandari Hosiery has also been dismissed by the Hon'ble Supreme Court vide order dated 18/8/2011.

2. In view of the aforementioned judgments of the Hon'ble Supreme Court, the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position. Accordingly, the instruction F No. 275/7/2010-CX8A, dated 30.6.2010 stands rescinded.

3. Appropriate action may please be taken accordingly in the pending disputes.