1. The present appeal is filed by the appellant being aggrieved with the rejection of refund claim of Rs. 4,69,561/-by the respondents in respect of services rendered from a non resident service provider for the period prior to 31.12.2004.

While admitting the appeal, following question of law was framed by this Court :

"Whether it was open to the respondent to recover the amount of service tax before issuing notification under Section 68(2) of the Finance Act, 1994"

2. The respondent contested the appeal while claiming that in view of provision of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, the tax paid by the appellant in respect of services rendered from the non resident service provider is liable to be refunded.

3. Learned counsel for the appellant has submitted that the question regarding payment of service tax in respect of services rendered from the non resident service provider has already been decided by the Bombay High Court in Indian National Shipowners Association Vs. Union of India, , wherein it is clearly held that the respondent department cannot levy service tax for the services received from a non resident service provider for the period prior to 18.04.2006. It is submitted that the SLP filed on behalf of the respondents against the decision rendered by the Bombay High Court in Indian National Shipowners Association (supra) has already been dismissed by the Hon'ble Supreme Court on 14.12.2009.

4. It is submitted that the Gujarat High Court in the case of the Commissioner, Service Tax Vs. Quintiles Data Processing Centre (I) Pvt. Ltd., and the Madras High Court in the case of Enmas Andritz Pvt. Ltd. Vs. Asstt. Commissioner of S.T., has followed the decision of the Bombay High Court rendered in the case of Indian National Shipowners Association (supra).

5. Learned counsel for the respondents is not in a position to dispute the above settled position of law.

The Bombay High Court in the case of Indian National Shipowners Association (supra) has held as under :

"17. Reliance is placed on the provisions of Rule 2(1)(d)(iv) quoted above for justifying the levy of service tax for the period from 16-8-2002. Perusal of the above quoted Rule 2(d)(iv) shows that by that provision a person liable for paying the service tax was defined to mean in relation to any taxable service provided by a person who is non-resident or is from outside India to a person receiving taxable service in India. Apart from the fact that this rule is contrary to the provisions of Section 68 and other provisions of the Act, under this provision the recipient of the service became liable for paying the service tax provided the service was received in India. The entire case of the Petitioners is in relation to the service received by the vessels and ships owned by the members of the Petitioner-association outside India. Therefore, it cannot be said that on the basis of Rule 2(1)(d)(iv), service tax can be levied on the members of the Petitioners-association. It is further to be seen here that Section 64 gives powers to the Central Government to make rules for carrying out the provisions of the Chapter. The chapter relates to taxing the services which are provided, the taxing on the value of the service and it is only the person who is providing the service can be regarded as an assessee. The rules therefore, cannot be so framed as not to carry the purpose of the Chapter and cannot be conflicted with the provisions in Chapter V of the Act. In other words, as the Act makes the person who is providing the service liable, the provisions in the Rules cannot be made which makes the recipient of the service liable. It is, thus, clear that the provisions of Rule 2(1)(d)(iv) are clearly invalid.

18. So far as reliance placed on the notification dated 31-12-2004 for justifying levy of service tax from the members of the Petitioners-association is concerned, that notification has been issued under Sub-section (2) of Section 68 of the Act. Sub-section 2 of Section 68 reads as under:

68(2) Notwithstanding anything contained in Sub-section (1), in respect of any taxable service notified by the Central Government in the Official Gazette, the service tax thereon shall be paid by such person and in such manner as may be prescribed at the rate specified in Section 66 and all the provisions of this Chapter shall apply to such person as if he is the person liable for paying the service tax in relation to such service.

The above provision authorises the Central Government to notify the taxable service, in relation to which the rules can be framed, in relation to such service. By the notification dated 31-12-2004, any taxable service provided by a person who is a non-resident or is from outside India is notified. If Rule 2(1)(d)(iv) is taken to be rule framed pursuant to this provision, then a person who receives taxable service in India from a person who is non-resident or is from outside India becomes taxable and not service rendered outside India by a person who is nonresident or is from outside India. Therefore, levy of service tax from the members of the Petitioners-association from 1-2-2005 (sic) 1-1-2005 cannot be justified.

19. Then reliance is placed on explanation which is added below Section 65(105). That explanation was added by Finance Act, 2005 with effect from 16-6-2005. That explanation reads as under:

Explanation-For the removal of doubts, it is hereby declared that where any service provided or to be provided by a person, who has established a business or has a fixed establishment from which the service is provided or to be provided, or has his permanent address or usual place of residence, in a country other than India and such service is received or to be received by a person who has his place of business, fixed establishment, permanent address or, as the case may be, usual place of residence, in India, such service shall be deemed to be taxable service for the purposes of this clause.

By this explanation services provided by a non-resident outside India to a person residing in India has been declared to be taxable service. Therefore, though the services provided to the members of the Petitioners-Association outside India becomes taxable service, the charge of the tax continues to be on the provider of service as per the scheme of the Act, and because of the explanation also the Respondents do not get authority of law to levy a service tax in relation to the services rendered to the vessels and ships of the members of the Petitioners-association outside India.

20. It appears that a similar provision in the rules was made applicable by the Government in relation to the Clearing Agents by making customers of the Clearing Agent liable for levy of the service tax. That question has been decided by the Supreme Court by its judgment in the case of Laghu Udyog Bharati (supra) and the Supreme Court has clearly laid down that the imposition of the service tax is on the persons rendering the services and by making a provision in the Rules, levy of tax cannot be shifted to the recipients of the services and the Rule framed which brought about this situation has been declared by the Supreme Court to be invalid. The law laid down by the Supreme Court in its judgment in Laghu Udyog (supra) is squarely applicable to Rule 2(1)(d)(iv), which is relied on in this case. It appears that it is first time when the Act was amended and Section 66A was inserted by Finance Act, 2006 w.e.f. 18-4-2006, the Respondents got legal authority to levy service tax on the recipients of the taxable service. Now, because of the enactment of Section 66A, a person who is resident in India or business in India becomes liable to be levied service tax when he receives service outside India from a person who is non-resident or is from outside India. Before enactment of Section 66A it is apparent that there was no authority vested by law in the Respondents to levy service tax on a person who is resident in India, but who receives services outside India. In that case till Section 66A was enacted a person liable was the one who rendered the services. In other words, it is only after enactment of Section 66A that taxable services received from abroad by a person belonging to India are taxed in the hands of the Indian residents. In such cases, the Indian recipient of the taxable services is deemed to be a service provider. Before enactment of Section 66A, there was no such provision in the Act and therefore, the Respondents had no authority to levy service tax on the members of the Petitioners-association.

21. In the result, therefore, the petition succeeds and is allowed. Respondents are restrained from levying service tax from the members of the Petitioners-association for the period from 1-3-2002 till 17-4-2006, in relation to the services received by the vessels and ships of the members of the Petitioners-association outside India, from persons who are non-residents of India and are from outside India."

(Emphasis Supplied)

6. We are in full agreement with the judgment of the Bombay High Court rendered in Indian National Shipowners Association (supra).

7. In the present case, the respondents have rejected the refund claim of the appellant of Rs. 4,69,561/-in respect of service rendered from a non resident provider for the period prior to 31.12.2004.

8. However, in view of the above settled position of law the said action of the respondents is illegal and in such circumstances, the impugned order dated 17.08.2007 passed by the Customs Excise & Service Tax Appellant Tribunal, New Delhi is hereby set aside and consequentially the orders dated 17.06.2005 passed by the Deputy Commissioner Central, Excise and Division, Bhilwara and 20.10.2005 passed by the Commissioner (Appeal II) Customs & Central Excise, Jaipur are also set aside.

9. The respondents are directed to refund the payment of Rs. 4,69,561/-to the appellant on the applicable interest in accordance with law within a period of six months from the date of production of certified copy of this order.

10. The appeal is allowed accordingly.