By TIOL News Service

NEW DELHI, AUG 22, 2014: THE appellants had entered into technical assistance agreement with M/s Thai Stanley Electric Public Company Ltd., Thailand with head office in Thailand for providing technical advice and instructions so that the appellantswould be able to manufacture auto parts for Hero Honda with satisfactory quality. The appellants paid Rs.35,20,000/- during the period 2004-2005 as technical knowhow fees in foreign currency to the aforesaid Thai company.

The adjudicating authority held that the service received fell under Consulting Engineering Service and the appellants were liable to pay service tax under reverse charge. Invocation of the extended period was also upheld by mentioning that the aforesaid fact was detected at the time of audit and which proved suppression.

The Commissioner(A) in the month of February, 2009 upheld this order passed in March, 2008.

When the appeal was heard by the CESTAT, the appellant was absent but the Revenue representative conceded that the reverse charge mechanism was without any legal basis prior to 18.4.2006.

The CESTAT observed -

++ In view of the foregoing and having regard to the fact that Section 66A of the Finance Act, 1994 giving the authority to charge service tax from the service recipient in case of receipt of service from outside India came into effect from 18.4.2006 and the period involved in this case is prior thereto, the demand confirmed cannot survive. The issue is no longer res integra to warrant elaborate discussion.

++ It is nonetheless dismaying to note that neither the Show Cause Notice nor the order-in-original/order-in-appeal even remotely mention the legal provision under which the recipients of service (i.e. the appellants) were liable to pay the impugned tax; a flaw which by itself could arguably be fatal.

The order of the Commissioner (A) was quashed as being unsustainable and the appeal was allowed.

(See 2014-TIOL-1575-CESTAT-DEL)