SPECIAL PROVISIONS FOR A NON‑RESIDENT OR A PERSON FROM OUTSIDE INDIA

By the Service Tax (Amendment) Rules, 1999, w.e.f. 28‑2‑1999, special provisions were made, in relation to taxable service provided by a person who is a non‑resident or a person from outside India, who does not have any office in India. Consequent to the said amendment, registration for such person was not mandatory under the service tax and special provisions were made for payment of tax and filing of return under the service tax. The service tax in such case was to be paid either by such service provider or by a person authorized by him. However, the Government noticed a lacuna in these provisions and faced difficulties in collecting service tax in such cases, as the service provider were leaving India after rendering the services. In this case, it was not possible under the existing legal provision to recover the service tax, once the service provider left the country. However, in many cases, the department had issued notices to the service receiver in India to recover the service tax on the services provided by a non‑resident but such action on the part of the department was beyond their jurisdiction and against the spirit of law.

The amendment in the provision related to non‑resident/ person from outside India and its implications:

In view of the difficulties being faced by the Government in collecting the service tax where service provider left the country after providing the taxable services, the amendment has been made in the Service Tax Rules, 1994, by inserting a sub‑clause (iv) in clause (d) of sub‑rule (1) of Rule 2, by the Notification No. 12/2002, dated 1‑8‑2002, w.e.f. 16‑8‑2002. As per the amended provisions, now, w.e.f. 16‑8‑2002, in relation to taxable service provided by a person who is a non‑resident or a person from outside India, who does not have any office in India, the person receiving taxable service in India shall be the Person liable for paying the service tax.

Thus, now, the burden of payment of tax, in case of service provided by a non‑resident or a person from outside India, is transferred from the person who rendered the taxable services to the user of taxable services. By shifting the burden of tax from service provider to the user of such services, the Government has disregarded the judgement given by the Apex Court in the case of Laghu Udyog Bharti & Anr. v Union of India & Others 112 ELT 365 (SC): (1999) 84 ECR 53 (SC). In the said case, the Supreme Court had quashed the levy of service tax on goods transport operator's services and 'clearing and forwarding agent's services' on the ground that the levy of service tax not on the person rendering the service, but the persons to whom or for whom, the service was rendered was clearly illegal and unsustainable in law. The Supreme Court, however, did not hold that the levy of service tax was illegal on the aforesaid services, the court only struck down those provisions in which the burden of tax was shifted from service provider to the user of service. However, after the aforesaid judgments, section 66 (charging section) is also amended w.e.f. 16‑101998. Earlier, prior to said amendment, the words used in that section were "there shall be charged a tax ... which are provided to any person by the person responsible for collecting the service tax", after the amendment, w.e.f. 16‑101998, the following words were substituted in section 66, "there shall be levied a tax... and collected in such manner as may be prescribed". Therefore, to overcome the implication and defects pointed out by the Supreme Court in the aforesaid judgment, the charging section 66 was modified as discussed above. Therefore, by the aforesaid amendment, it was made legal even to levy of service tax on the person receiving the service tax.

In view of the aforesaid amendment, now, w.e.f. 16‑8‑2002, the provisions related to the registration of service tax, payment of service tax, filing of return etc. shall be applicable to the person who is the receiver of the services. Now, the Government in para 2.9.2 of its Circular No. 59/8/2003, dated 20‑6‑2003 (appended as Annexure I in the Chapter on 'Credit of Service Tax Paid') has also clarified, "as per the existing law, in such cases service receiver is required to take registration, to pay service tax and to comply with other procedural formalities".

It may be noted that even though language of the existing rules suggest that rules have been framed for the service provider not for the receiver of. service which may lead to confusion. Therefore, in the opinion of the author either separate procedure may be provided for the receiver of service or even it may be provided that in this case, existing rules shall be applicable mutatis mutandis.

Provision prior to amendment i.e. before 16‑&2002

(1) Registration

A person who is a non‑resident or is from outside India, does not have any office in India, and was liable to pay the service tax, was not required to make an application for registration, if service tax on taxable services rendered by him was paid by such person or on his behalf by any other person authorized by him under rule 6 [old provisions, third proviso to sub‑rule (1) of rule 4].

(2) Payment of tax

The person, who is non‑resident or is from outside India and does not have, any office in India and was liable to pay service tax, the service tax could have been paid either by such person or on his behalf by any other person authorized by him [old provisions, clause (i) of second proviso to sub‑rule (1) of rule 6].

The payment of service tax should have been made within a period of 30 days from the date of raising of the bill on the client for the taxable services rendered [old provisions, clause (ii) of second proviso to sub‑rule (1) of rule 6].

The above category of persons were required to make the payment of service tax to the Commissioner of Central Excise in whose jurisdiction the taxable services were rendered, by way of a demand draft payable to the Commissioner of Central Excise [old provisions, sub‑clause (f) of clause (i) of second proviso to sub‑rule (1) of rule 6].

(3) Return

The person who is non‑resident or is from outside India and does not have any office in India and was liable to pay service tax, return should have been filed by such person or in his behalf by any other person authorized by him [old provisions, clause (i) of second proviso to sub‑rule (1) of rule 6].

The return was to be submitted along with the prescribed details/ particulars to Commissioner of Central Excise in whose jurisdiction the taxable services were rendered [old provisions, clause (i) of second proviso to sub‑rule (1) of rule 6].

Return was to be accompanied with

1. a copy of the bill raised on the client to whom services was rendered;

2. a copy of contract or agreement regarding the provision of such services to the client; and

3. a demand draft payable to the Commissioner of Central Excise towards his service tax liability [old provisions, sub‑clause 0 of clause (i) of second proviso to sub‑rule (1) of rule 6].

Return was to be submitted within a period of 30 days from the date of the raising of the bill [old provisions, clause (ii) of second proviso to sub‑rule (1) of rule 6].

(4) Penalty and interest

The aforesaid category of assessee, if failed to make payment within a period of 30 days from the date of raising of the bill, was liable to pay interest as per the provision of section 75 [old provisions, clause (ii) of second proviso to sub‑rule (2) of rule 6].

(5) Relevant case

Foreign company rendering services in India does not have office in India and as per the term of the contract, all the tax was to be paid by Indian Company, to whom service is rendered, which was paid with interest. Thus, it is held that in the circumstances there is a reasonable cause for non compliance and no penalty is levied; further it was also held that the foreign company is under the direct control of Ministry of Economic Affairs and Trade of its country and cannot be said to have intention to evade tax. [CCE, Bhubaneswar‑II v Tyazhpromexport 2003 (157) ELT 576 (Tri.‑Kolkata)]. It may be noted that now, as discussed in this Chapter, as per Rule 2(l)(d)(iv), w.e.f. 16‑8‑2002, in such case, receiver of service is liable to pay service tax.