The liability to pay service tax on services received from a foreign company lies with the service provider and not the recipient, as per Section 66A(2) introduced in the statute book from 18.04.2006 onwards.

N. Kumar, J.—Revenue has preferred this appeal challenging the order passed by the Tribunal which has held that the assessee is not liable to pay service tax for the services received during the relevant period from foreign company.

2. The assessee, M/s Molex (India) Private Limited has paid Rs. 1,37,38,030-00 + Rs. 27,77,471-00 to their holding Company M/s Molex International Inc. USA towards Royalty fees for supplying technical data during the period 2003-C4 and the service tax on the aforesaid Royalty works out to Rs. 13,21,240-00. A show-cause notice came to be issued on 02.07.2004 calling upon them to show cause as to why a sum of Rs. 21,53,631-00 should not be demanded towards service tax with interest and penalty. The assessee replied to the said show-cause notice contending that collaboration agreement envisaged payment for use of technology involving transfer of technology and does not involve rendering of technical assistance, advice or consultancy. No services are actually rendered/provided or even deemed to be rendered or provided and they denied the liability to pay service tax. The explanation was not accepted by the Assistant Commissioner. Therefore he confirmed the demand and also directed payment of penalty. Aggrieved by the same, the assessee preferred an appeal to the Commissioner of Central Excise, who set aside the said order insofar as Royalty fees for supply of technical know-how. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal. The Tribunal following the judgment in the case of BST Ltd. vs. CCE, (2007) 6 STT 87 (Bang.-CESTAT) and other cases referred to therein, held, that the assessee is not liable to pay service tax.

3. The sum and substance of the reasoning is, during the relevant period, even if services are received from a foreign company, it is provider of service who should have paid tax and not the recipient of the tax, as the provider of service was also a Company. It is only from 18.04.2006 onwards, when Section 66A(2) was introduced in the statute book, the liability was foisted on the service recipient to pay the service tax. Therefore it dismissed the appeal. Aggrieved by the said order, the present appeal is filed.

4. This Court had an occasion to go into the said question in the case of Commissioner of C. EX. and S.T., Bangalore Vs. Micro Labs Ltd., (2011) 22 S.T.R. 615, wherein it has been held as under:

From a perusal of the aforesaid Section it is clear from sub-section (1) of Section 68 that every person providing taxable service is liable to pay service tax. However, sub-Section(2) makes it very clear that notwithstanding anything contained in sub-Section (1) in respect of any taxable service provided by the Central Government in the Official Gazette the service tax thereon shall be paid by "such person in such manner" and the same may be prescribed at the rate specified in Section 66 and all provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service. Therefore, the aforesaid provision authorises the Central Government to issue a Notification and prescribe a person who is liable to pay tax as well as the manner in which the tax is to be paid. As the opening words of sub-Section (2) starts with non obstante clause even though under section 68(1) the service tax is payable by the person who provides the service it is open to the Central Government by issuing a Notification under sub-Section (2) to specify that a person other than the service provider is also liable to pay tax. It is in this context the Notification 36/2004 S.T. dated 31st December 2004 has been issued not only stipulating services which are liable for service tax and it also makes it clear that any taxable service provided by a person who is not a resident or is from outside India who is not having any office in India. The said Circular is set out hereunder:-

"(Notification No. 36/2004-S.T., dated 31.12-2004)