TMI Blog2021 (3) TMI 1345X X X X Extracts X X X X X X X X Extracts X X X X ..... 012 as amended and Rule 2(1)(d)(i)(G) of the Service Tax Rules 1994. Appellant has received services, i.e. Banking and other Financial Services from Lender Banks in Federal Republic of Germany. For purpose of Service Tax levy, charges for providing such actual Taxable services recovered by Lender Banks from Assessee are gross amount charged by the Service Provider for such service provided or to be provided. Service Tax is levied on transactions of Taxable Services between Service Providers and Service Recipients under forward charge or reverse charges, as applicable in appropriate cases. Hence, it is essential first to ascertain who is the Service Provider and who is the Service recipient before considering one s liabilities on the Taxable Services in question. In the present case, we find that Service Tax is confirmed on the Insurance premium amount paid to HERMES by the lender Banks in Germany for providing Insurance cover to the lender Banks in Germany, which lender Banks have recovered from Appellant. However, Appellant claims it not liable to Service Tax as Appellant has not received Services provided by HERMES and service receiver are Lender Banks in Germany and hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H NAIR, MEMBER (JUDICIAL) AND RAJU, MEMBER (TECHNICAL) Present For the Appellant : Shri P.P. Jadeja, Consultant Shri Paresh Dave, Advocate Present For the Respondent : Shri Dinesh Prithiani, Assistant Commissioner (Authorised Representative) ORDER The issue involved in the present Service Tax Appeal is to ascertain whether appellant is liable to pay Service Tax under Reverse Charge Mechanism (RCM) or otherwise in connection with External Commercial Borrowings obtained from Germany by Appellant. This Appeal is filed against impugned Order-in-Original No. VAD-EXCUS-001-COM-06- 2021-22 dated 02-08-2021 passed by Principal Commissioner, CGST Central Excise, Vadodara-I, wherein demand of Service Tax ₹ 2,96,70,103/- with interest and equal penalty is confirmed under RCM, for Banking and other Financial Services in connection with External Commercial Borrowings obtained by Appellant from Lender Banks of Federal Republic of Germany. 2. Brief fact of the case is that the Appellant is a manufacturer of BOPP films since January, 2009. In order to expand their production capacity and import Capital Machinery, Appellant has obtained External Commercial Borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26.31.000 Euler Hermis 1.96.066 22.621 l,73,445 73.002 1,26,61,832 25.01.2017 18,99.275 Total 21,54,01, 570 2,96,70, 103 2.1 The officers of Directorate General of Goods Service Tax Intelligence, AZU, Ahmedabad Zonal Unit, gathered intelligence, that Appellant has not paid applicable amount of Service Tax under Reverse Charge Mechanism on all the services in the nature of Banking and other Financial Services underSection 68(2) of the Finance Act, 1994 read with Notification No. 30/2012-ST dated 20.06.2012 as amended. On completing the inquiry, officers of DGGI, Ahmedabad issued S.C.N. No. DGCEI/AZU/12(4)81/2017-18 dt. 24-12-2020 to the Appellant for FY 2015-16 to FY 2017-18 [upto 30.06.2017], whereby the demand of Service Tax (including Cess) of ₹ 2,96,70,103/- has been made, under Reverse Charge Mechanism, on taxable value of ₹ 21,54,01,570/-, being amount for Hermes Premium/ECA premium Tranche and Processing Fee paid by Appellant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es do not attract Service Tax. Appellant is not liable to Service Tax under RCM on the amount paid to HERMES in Germany for Insurance cover provided to lender Banks in Germany as Appellant is not a Service provider or Service receiver and both Service provider HERMES and service receiver Lender Banks are in Germany and hence Service Tax is not attracted for transactions under Finance Act 1994. Appellant was not discharging service tax liability as they believed that the amount paid to HERMES by lender Banks was included in loan amount and the Appellant is paying Interest thereon to Lender Banks. Hence, the amount of HERMES premium were considered as loan and Appellant treated amounts as non- taxable under RCM. Submissions are also made against Confirmation of Service Tax demand on complete revenue neutral situation, on time limitation to issue this SCN, being case of interpretation of provisions, extended period not invocable and Penalty also not sustainable in settled position of law. They placed reliance on the following Circular/Judgments on merits of the case :- Circular No.89/7/2006-ST dated 18.12.2006. Maharashtra Industrial Development Corporation 2014 (36) ST ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime for issuance of SCN for FY 2015-16 to 2017- 18 (Upto June-2017). Invoking extended period of limitation is incorrect and hence, invoking extended period of limitation deserves to be dropped. In their support they have relied upon the judgments of the Hon ble Supreme Court of India in H.M.M. Limited as reported 1995 (76) ELT 497 (SC) and Padmini Products and Chemphar Drugs Linimentsas reported in 1989 (43) ELT 195 (SC) and 1989 (40) ELT 276 (SC)respectively. They also relied upon following decisions :- NCR Corporation India Pvt. Ltd. V/s. CST- 2021 (55) GSTL 6 (Tri.-Bang.). Ajit India Pvt. Ltd. V/s. CST, Mumbai 2018 (19) GSTL 659 (Tri.-Mumbai). Commissioner of C.Ex., Vadodara V/s. SOTEX 2007 (209) ELT 9 (S.C). 3.3 They also submit that Show Cause Notice and demand against an assessee would not be justified if assessee himself was entitled to avail Cenvat credit of disputed Service Tax demanded and assessee was in a position to utilize Cenvat credit for final outward transactions. It is also a settled legal position that Revenue cannot invoke larger period of limitation in cases involving Revenue Neutral Situation, because an assessee could never have any inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by HERMES of German Agency to lender Banks in Germany. Thus, the service provider and the service receiver are outside land mass of India and both are in Germany. Both are located in non taxable territory. The activity of actual service is provided out of India and the said services provided and received being out of India, activities are out of the scope of levy of Service Tax in terms of Section 64 of Finance Act 1994. They also relied upon decision of the Hon ble Gujarat High Court in case of 2020 (37) GSTL 3 (Guj) - Sal Steel Ltd v/s UOI. 4. Shri Dinesh Prithiani, Learned Assistant Commissioner (Authorised Representative) appearing on behalf of the revenue reiterates findings in impugned Order-in-Original and submits that Appellant has paid amount in question to Lender Banks and have received services from foreign lender Banks. It is taxable under reverse charge mechanism under Section 66A of Finance Act 1944, which has rightly been confirmed by the adjudicating authority. He submits that classification of service is not required after 01-07-2012 and that obtaining insurance cover by the Lender Banks was mandatory pre-condition for allowing ECB. He submitted to uphold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um, ECA Premium (Euler Hermes) and Processing Fees paid by them to Lender Bank in Republic of Germany from April 2015 to June 2017 under Section 73(1) of Finance Act, 1994. We find that Section 65(12) of Finance Act 1994 provided for Banking and Other Financial Services . This gives a list of services provided by banking company or financial institution and includes, amongst others, in clause (ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts. Taxable service as defined under section 65(105) (zm) of Finance Act 1994 means any service provided or to be provided to any person, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services. External Commercial Borrowing (ECB), is Expression used to refer to the Commercial Loans from overseas Lenders as finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remium is premium charged by ECA to Lender Banks under ECA Policy for relevant Loan Agreement. (vii) ECA Premium - means the premium (including handling fees) charged by the ECA to the Lender under the ECA Policy for the relevant Loan Agreement. (Viii) ECA Premium Reimbursement Claim - means the Lender s claim under a Loan Agreement for reimbursement of the ECA premium. We find that Appellant was not discharging service tax as they believed that amount paid to HERMES was included in loan amount and Appellant is paying Interest to Lender Banks. HERMES premium were considered as loans and Appellant treated it as non- taxable under Service Tax. Appellant claims that demand is not sustainable, as Appellant is neither service provider nor service receiver. Service provider is HERMES and Service Receiver are Lender Banks. We also find from relevant Agreements that as per legal provisions in Federal Republic of Germany, the Lender Banks in Germany can not provide any such External Commercial Borrowing , unless Lender Bank has first obtained Insurance Cover from HERMES , an Agency of Federal Republic of Germany for securing Lender Banks maximum upto 95 % of Loan Amount, in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has occurred beyond land mass of India. We find that there is also no dispute on the facts that Appellant has paid the amount in question to Lender Banks, but, the said amount paid by Appellant to Lender Banks was for obtaining the Insurance cover from HERMES of Federal Republic of Germany. We also find that the levy of Service Tax under the Finance Act 1994 was on Taxable Services , provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Thus, Service Tax was only on the Service by a person (i.e. the service provider) for another person (i.e. the receiver of service). Only two parties are recognized by Law in regard to service i.e. service provider and recipient of service. Appellant may be beneficiary of transaction between Insurer HERMES and Lender Banks. Appellant wanted Loans and Lender Banks have given desired loans to Appellant. Lender Banks have recovered their expenses from Appellant, which were incurred by Lender Banks for obtaining Insurance cover from HERMES of Federal Republic of Germany. 5.3 Before going into merits of the case, we also find that Appellant has objected Service Tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 26,31,000 Euler Hermis 1.96.06 6 22.621 l,73,445 73.002 1,26,61,83 2 25.01.201 7 18,99.275 Total 21,54,01,570 2,96,70,103 Appellant submit that entire demand is hit by limitation. Section 73(1) of Finance Act 1994, normally allows Central Excise Officer to issue SCN within thirty months from relevant date for demand of service tax, but in appropriate cases of fraud; or collusion; or wilful mis-statement; or suppression of facts; or contravention of provisions of rules with intent to evade payment of service tax, time limit of thirty months , gets extended to five years from relevant date. Appellant has elaborately submitted to demonstrate that an inquiry was initiated by DGGI, against Appellant vide letters dated 10.01.2018, 16.08.2018, 05.02.2019, 18.02.2019 and 28.02.2020 requesting them to submit information/details relevant in the matter such as details of ECBs availed and Appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submission of Balance-Sheet. All information of Appellant is in public domain. Audit Officers had verified and audited Books of Account of Appellant from February, 2011 to March, 2012 and raised objection about non-payment of Service Tax on Management fees and Commitment fees charged by Lender Banks in such loan transactions, which were approved in MCA meeting involving period from February 2011 to March 2012. The audit objection were on Management fees and Commitment fees, but other elements like Hermes premium and ECA premium trenches, were also part of the very same loan agreement. When Audit officers brought to appellant s notice that service tax was chargeable on Management fees and Commitment fees in respect to loan agreements dated January 7th/11th, 2011, Appellant discharged Service Tax and regularly paid service tax on Management fees and Commitment fees for all such agreements including 4 agreements involved in the present case. If Audit Officers, who verified and examined loan agreements dated January 7th/11th, 2011, had pointed out liability to pay Service Tax on Hermes premium and ECA premium trench, appellant would have discharged Service Tax on such elements and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion to evade payment of service tax. There is nothing on record to show that any suppression of facts or illful misstatement were made on the part of the Appellant who has filed periodical ST-3 return regularly and disclosed all necessary details as required. In this circumstances charge of suppression or willful misstatement with intention to evade Service Tax can not be alleged against Appellant. For this reason no mala fide can be attributed to appellant. Hence longer period of demand can not be invoked. No mala fide can be alleged for such issue of interpretation and hence extended period of time limitation is not invocable in the facts of this case. We find that nature of services was in knowledge of Revenue since 2012 as Audit points decided to similar loan Agreements are known to Revenue. In such case when the facts were in knowledge of department, there is no ground to raise demand by invoking extended period of limitation. Thus demand for longer period is time barred. Department was aware on HERMES Insurance Premium charged by Lender Banks in ECB and no evidence produced by Revenue showing any suppression or mala fide intention by Appellant for non-payment of Service Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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