By TIOL News Service

MUMBAI, MAY, 08, 2015: THE appellant John Deere Equipment Pvt. Ltd. (JDE) entered into a technical collaboration agreement for receiving consulting engineer's service with M/s. Deere & Company, Illinois, USA (DEC) for manufacture of agricultural tractors including components and service and repair parts by the contractors. Agreements indicated that DEC were to receive royalty/technical service fees @ 3% of the ex-factory sales of the products manufactured by JDE or subsidiaries or affiliates.

The lower authorities were of the view that both, JDE and DEC were liable for service tax under the category of 'consulting engineer's service' on reverse charge mechanism on JDE and on DEC for the services rendered to JDE for the period 01/04/2003 to 31/03/2004.

SCNs were issued to both the parties and the CCE, Pune-III, in the month of March, 2006 confirmed the demands raised along with interest and imposed penalties.

Before the CESTAT, the appellant submitted that the entire issue has been 'blown out of proportion' by the lower authority inasmuch as the issue of discharge of service tax liability by JDE would not arise as the entire services were received by them before 18/04/2006 and the demands had been confirmed by invoking the provisions of Service Tax Rule 2(1)(d)(iv); that provisions of Section 66A came to the statute only w.e.f. 18/04/2006 and hence liability to discharge service tax under reverse charge mechanism would arise only after 18/04/2006.

As regards the demand on DEC, it is submitted that the appellant is incorporated as a company situated in USA and has no office or premises in India and, therefore, the question of confirming the demand on such entity is beyond the law.

The AR justified the order passed by the CCE, Pune-III and reiterated the findings contained therein.

The Bench inter alia observed -

+ In the case of JDE, the service tax demand has been confirmed by invoking the provisions of Rule 2(1)(d)(iv) of the Service Tax Rules which has been extensively dealt with by the hon'ble High Court of Bombay in the case of Indian National Shipowners Association - 2008-TIOL-633-HC-MUM-ST upheld by the hon'ble apex Court - 2009-TIOL-129-SC-ST. As per the law settled, demand of service under reverse charge mechanism can only be w.e.f. 18/04/2006. Respectfully following the law laid down by the apex Court, we find that the impugned order confirming demand on JDE is not sustainable and is liable to be set aside and we do so.

+ As regards the appeal filed by DEC, we find that the appellant is an entity situated at Illinois in USA. The provisions of Finance Act, 1994 do not apply to an entity who is not situated within India. There is no dispute that the said DEC has no office or any permanent establishment in India. In view of this factual matrix we hold that the provisions of Finance Act, 1994 are not applicable to an entity who is situated abroad having no office or permanent establishment in India. The impugned order confirming the demand on DEC is liable to be set aside and they are set aside.

In fine, both the appeals were allowed with consequential relief.

(See 2015-TIOL-829-CESTAT-MUM)