Service Recipient Liable for 100% Tax on Imports from Non-Taxable Territory: CESTAT quashes Demand, cites Recipient's Paid Tax already [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that service recipients are liable for 100% tax on services imported from a non-taxable territory under the Reverse Charge Mechanism (RCM). As the Service Recipient (Reliance) already paid the tax, the tribunal quashed the demand order.

UTStarcom Inc. (India Branch), the appellant, is a branch of UTStarcom Inc. USA, engaged in providing marketing and support services. During an audit, the department observed alleged short-payment of service tax amounting to Rs. 27,64,350 for services deemed imported by UTStarcom Inc. (India Branch). The department issued a show cause notice (SCN) demanding recovery of the tax, along with interest and penalties.

The appellant argued that the services in question were directly provided by UTStarcom Inc. USA to Indian telecom companies, including Reliance Infocom, and that the service tax liability was discharged by these companies under RCM.

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The appellant’s counsel argued that all relevant details were disclosed to the department, and the demand was based on an incorrect understanding of facts.

The revenue argued that the services were imported by the appellant and that service tax was not paid, as shown in their books of accounts and returns. It contended that the SCN was validly issued, as the shortfall was evident from the appellant's disclosures.

The two-member bench comprising Dr. Rachna Gupta ( Judicial Member ) and Hemambika R. Priya ( Technical Member ) observed that the services in question were provided directly by UTStarcom Inc. USA to Reliance Infocom with tax liability discharged under RCM.

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The tribunal observed that the appellant had disclosed all relevant facts to the department, so claims of suppression were out of the question. The extended limitation period was wrongly invoked as there was no evidence of willful suppression or evasion.

The tribunal held that the demand against the appellant was invalid as service tax liability had already been discharged and the SCN was time-barred. The appeal was allowed and the demand was set aside.

To Read the full text of the Order CLICK HERE

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