Clarification on Service Tax Liablity
In a significant ruling, the larger Bench of the Delhi Income-Tax Tribunal has held that service tax liability of the recipient of a taxable service who receives such service in India from a non-resident, commences from January 1, 2005 and not since August 16, 2002.
The clarification was needed in the following context - Service Tax Rules 1997 prescribe that services received in India from a foreign service provider not having any office in India, the 'person liable for paying service tax' will be the service recipient. As per finance Act 1994 that lays down the method of the payment of tax, the service provider is required to pay the tax.
The Act also says that in respect of the notified services' service tax shall be paid 'by such other person and in such other manner as may be prescribed'. A Jan 1, 2005 notification said that in respect of all the taxable services received from a foreign service provider not having any office in India, the recipient was liable to pay the tax.
The contention of the Revenue in the case we are discussing was that with the recipient of services being included in the definition of 'person liable to pay service tax' from August 16, 2002 the liability of payment of tax in respect of the services received from a foreign provider was fixed on the recipient from that day.
The tribunal rejected the Revenue's argument and held that a definition clause cannot be read as a substantive provision creating a liability in a tax statute.
As the taxable services were only notified through Jan 1, 2005 notification, the recipient could be made liable to tax from that date alone.
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