The article on service tax explains two recent important High
Court and Supreme Court judgments.
Fact of the case
Kerala Sate Electricity Board (KSEB) failed to deposit
Service Tax on the services received by it from a foreign service provider.
Appellant, KSEB entered into an agreement with M/s. SNC Lavlin Inc. Montreal,
Canada (Foreign company) in relation to various projects for obtaining
consultancy services from them. The period for which the service tax was due
was from August 1998 to September 2002. Under the agreement, indisputably, the
appellant was responsible to make payment of the service tax on behalf of the
foreign company.
KSEB did not dispute the Service Tax liability applicable
of the aforementioned service, However they filed an appeal with the Hon'ble
Supreme Court stating that the onus to pay interest, if payable on the tax is
on the service provider and not service recipient; i.e., KSEB.
Thus, the question before the Hon. Supreme Court was
whether KSEB, the service recipient, within the meaning of provisions of
Finance Act, 1994, levying service tax, is liable to pay any interest on the
amount of tax due.
A Division Bench of the Kerala High Court construing the
provisions of the Act in the light of the terms of the contract entered into
by and between the appellant and the foreign company opined that the liability
in that regard was on the appellant and not on the foreign company.
The counsel, in support of this appeal, inter alia, urged
that the liability to pay interest and penalty being statutory one, the
service provider was responsible therefore and not the service recipient.
Observations by the Supreme Court
The Supreme Court noted that Sub-rule (1) of Rule 6 of
Service Tax Rules, as applicable at the relevant time, stipulated that in case
of a person who was from outside India and did not have any office in India,
the service tax due on the service rendered by him should be paid by such
person or on his behalf by any other person authorized by him should submit to
the Commissioner of Central Excise in whose jurisdiction the taxable services
have been rendered by him a return containing specific details with necessary
enclosures. Such returns along with a demand draft have to be submitted within
a period of 30 days from the date of raising the bill on the client for the
taxable services rendered.
The Supreme Court also noticed that in terms of the proviso
appended to sub-rule (1) of Rule 6 of Service Tax Rules, it is provided that
in case of a person who was a non-resident or was from outside India and who
did not have any office in India, the service tax due on the service rendered
by him should be paid by such person or on his behalf by another person
authorized by him who should submit to the Commissioner of Central Excise in
whose jurisdiction the taxable services had been rendered, a return containing
specific details with necessary enclosures.
It was further observed by the Hon Supreme Court that the
Hon. High Court had arrived at finding the fact that the foreign company did
not have any office in India. Further, it was not in dispute that the terms of
the agreement entered into by and between the appellant and foreign company at
all material time, had shown that the responsibility of meeting the service
tax liability was on the service recipient. Further it was observed that
despite the amendment of Rule 6 (1) w.e.f. 16-8-2002 agreement still held
good, as the service recipient being the appellant had taken up the
responsibility of meeting the liability of the foreign company.
The Supreme Court held
-
If Appellant itself was liable for payment of tax, it was
also liable for payment of statutory interest thereupon, if the same had not
been deposited within the time stipulated by the statute.
-
The liability to pay tax was not on the foreign company.
Only on default on the part of the appellant the interest was leviable.
Conclusion
The liability being that of the appellant, it must accept
the liability of payment of interest leviable thereupon in terms of statute
occasioned by the breach on its part to deposit the amount of tax within the
prescribed time.
So the Supreme Court was of the opinion that no case has
been made out for interference with the impugned judgment and dismissed the
appeal with costs of Rs. 25,000/-.
(This case in is relation to Business Auxiliary Services)
Fact of the case
Dr. Lal Path Lab. P. Ltd. (DLPLPL) was providing the
service of collection of blood, urine and stool samples and sending the same
to its principal’s lab for biological testing. Revenue demanded service tax on
the activity under the category of ‘Business Auxiliary Service. (BAS)’ The
Revenue based their case on the argument that the activity resulted in
promotion and marketing of services provided by the principal.
The question herein was whether the activity of DLPLPL was
taxable under BAS service or under the category of ‘Technical Testing and
Analysis Services’. Further whether merely because any incidental service was
rendered by assessee like putting across or dropping of name of principal
company, it would not become part of definition of ‘Business Auxiliary
Service’ within meaning of section 65(19)(ii).
The High Court held
The appeal was liable to be dismissed because in pith and
substance, the activity of the assessee was confined to a collection centre
with facilities and trained employees for drawal of blood samples and to carry
out essential processing (serum separation) of blood and forwarding the
samples to the principal lab at Delhi through courier. The collection centres
were also the responsible for disposal of waste arising in the process.
Thus, the activity appeared to be covered within the
exception to clause (106) of section 65, which defines expression ‘Technical
Testing and Analysis’.
As per the provisions ‘Technical Testing and Analysis’
service does not include any service provided in relation to testing or
analysis service provided in relation to human being or animals. The
Explanation to section 65(106) excludes testing or analysis services provided
in relation to determination of the nature or disease, prevention of any
disease or disorder in human beings or animals.
The Court further observed that being the statutory
provision, there was no doubt that merely because any incidental service was
rendered by the assessee like putting across or dropping of the name of the
principal company, it would not become part of the definition of ‘Business
Auxiliary Service’ within the meaning of section 65(19)(ii).
Conclusion
The view taken by the Tribunal was unassailable and
deserved to be upheld. Therefore, the instant appeal failed and the same was
to be dismissed.
