Performance of Technical and Inspection Service in India: CESTAT quashes Service Tax Demand on RCM basis [Read Order]

In a recent decision the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), quashed the service tax demand on the Reverse Charge Mechanism (RCM) basis.

M/s. Lakshmi Electrical Drives Limited, Coimbatore, the appellant is engaged in the manufacture of electrical motors. They have registered for payment of Service Tax under the categories of “Transport of Goods by Road and Maintenance of Repair Services”.

During the course of audit of accounts of the appellant, it wasnoticed that a payment was made in foreign currency to the Canadian Standards Association operating as M/s. CSA International, Canada for factory certification which is similar to ISO Certification.

It appeared that the services provided by M/s. CSA International, Canada falls under the category of “Technical Inspection and Certification Service” and the assessee is liable for payment of service tax under Section 66A of the Finance Act, 1994 read with Rule 2(1)(d) of the Service Tax Rules, 1994, under Reverse Charge Mechanism (RCM in short), as the person who provided the service is located outside India.

Consequently, a Show Cause Notice dated was issued to the appellant which was duly adjudicated demanding appropriate service tax along with interest and also imposing penalties under Sections 77 and 78 of the Act. The period of dispute is from 01.04.2009 to 31.03.2010.

The Counsel for the appellant submitted that the provisions of 66A are not applicable if the services are performed in India by the service provider. Technical Inspection service was performed by M/s. CSA Private Ltd, Bangalore and only Certificate issue was performed by M/s. CSA International, Canada. As such, it was argued that RCM liability cannot be fastened on to the appellant under 66A of the Finance Act, 1994.

M. Ambe representing the Revenue has argued that the service of Technical Inspection and Certification was rendered by M/s. CSA International, Canada to whom the payment was made by the appellant and as such, the appellant is required to pay the service tax under RCM under 66A of the Finance Act, 1994.

The Tribunal comprising of P Dinesha, Judicial Member and Vasa Vasa Seshagiri Rao, Technical Member observed that “The records clearly reveal that the inspection service got performed in India though the certificate was issued by M/s. CSA International, Canada. As M/s. CSA International, Canada has got its 100% Subsidiary in Bangalore, invoking the provisions of Section 66A of the Finance Act and fastening the tax liability on the appellant on RCM basis is not legally sustainable and as such, we hold that the appellant succeeds on merits.”

To Read the full text of the Order CLICK HERE

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