Case: M/S Kerala State Electricity Board Vs. Commr.Of Central Excise,Thiruvanthapuram

A limited notice was issued to the effect as to whether the appellant-Kerala State Electricity Board, the service recipient, within the meaning of provisions of Finance Act, 1994, levying service tax, is liable to pay any interest on the amount of tax due to thequestion involved in this appeal arises out of a judgment and order dated 25.7.2006 passed by a Division Bench of the High Court of Kerala at Ernakulam whereby the appeal filed by the respondent herein from the judgment and order of the Customs Excise & Service Tax Appellate Tribunal, Circuit Bench at Cochin in Final Order No.477 of 2005, Appeal No.ST/36/2004 wasbasic fact of the matter is not in dispute. Appellant herein entered into an agreement with M/s. SNC Lavlin Inc. Montreal, Canada (Foreign company) in relation to various projects for obtaining consultancy services from them. The relevant clauses of the said agreement are as under:- SNC Lavaline and all its expatriate personnel shall be responsible for timely and prompt filing of all returns, estimates, accounts, information and details complete and accurate in all respects as may be required under the applicable laws/regulations in India before the appropriate authorities in India. In case SNC Lavaline or any of its expatriate personnel do not comply with the above tax requirements, which results in any penalty, interest or additional liability, the same shall be borne by SNC Lavaline.16.2 - SNC Lavaline shall provide KSE Board the relevant orders/notices of demand, invoices, appellate orders and other relevant information as the proof of the actual tax liability to be borne by KSE Board, sufficiently in advance to enable KSEB to take appropriate action in this connection.16.3 - SNC Lavaline and its expatriate personnel, if required by KSEB, shall contest appeals against any assessment/demand of an appropriate authority before such authority at the request of and cost expenses ofthe said contractual commitments, the appellant failed and/or neglected to pay service tax on behalf of foreign company. It, on the other hand, raised a dispute that having regard to the purported statutory obligations of the service provider as contained in the Act and the Rules framed, it was not liable to pay any servicereason of the impugned judgment, the Division Bench of the Kerala High Court construing the provisions of the Act in the light of the terms of the contract entered into by and between the appellant and the foreign company opined that the liability in that regard was on the appellant and not on the foreign company.

Court's reasoning:
The submission is misconceived for several reasons. Section 68 is a machinery section in that it provides for the incidence of taxation and is not the charging section which is Section 66. The amendments to Section 66 brought about in 2000 changed the point of collection of tax from the provider of the service tomanner as may beSection 68(1-A) as it stood in 1997 provided for the collection and recovery of service tax in respect of the services referred in sub-clauses (g) to (r) of Section 65(41), which included both the services with which we are concerned, from such person and in suchmanner as may beprescribed. The 1998 Finance Act maintained this. Now the Service Tax Rules, 1994 provided for the collection and recovery of tax from the users or payers for the services. This was the prescribed method. All that the proviso to Section 68(1-A) did was to prescribe the procedure for collection with reference to services of goods transport operators and clearing agents which services had already been expressly included under the Finance Act, 2000 in the definition of taxableplaced by Mr. Iyer on Commissioner of Central Excise, Meerut - II v. L.H. Sugar Factories Ltd. and Ors. [(2005) 13 SCC 245]  is also not of much assistance as the decision was rendered in relation to the provisions of Income Tax Act holding that the said Act also must be construed having regard to the chargingtherefore, are of the opinion that no case has been made out for interference with the impugned judgment.