The Mumbai CESTAT, in Total Oil India Ltd v. Commissioner of Service Tax, Mumbai, held that service tax is not payable on services such as testing and analysis rendered by foreign companies to the assesse-Company under reverse charge mechanism (RCM).
Appellant-Company sent sample goods to certain foreign companies for testing and analysis and paid service charges for such services. The reports of the test and analysis provided by the foreign based company were received and utilized by the Company. The grievance of the Company was that the department demanded service tax from them by stating that are liable to discharge service charge liability on the service received by them from the foreign based service provider under the reverse charge mechanism.
The Company, being failed to secure relief from the first appellate authority, approached the appellate Tribunal.
Before the Appellate Tribunal, the appellants denied their tax liability by stating that foreign service provider is providing service of technical testing and analysis in respect of the goods of the appellants outside India only. Since the service of technical testing and analysis was performed outside India, the same is not taxable.
The bench agreed with the fact that technical testing and analysis service was provided by the foreign service provider in relation to the testing of the goods supplied by the appellants to foreign country. “The performance of such service was wholly carried out in foreign country. For the purpose of levying service tax on the services provided from outside India and received in India, section 66A was enacted wherein Taxation of Services (Provided from outside India and received in India) Rules, 2006 was issued.”
Under section 65(105)(zzh), in case of technical testing and analysis service if such service is performed in India even either wholly or partly by the person located outside India then it will be taxable in the hands of the recipient under the reverse charge mechanism. “However, in the present case the technical testing and analysis was provided wholly in a country outside India, therefore by virtue of Rule 3 clause (ii) the said service is not liable to service tax.”
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