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2019 (4) TMI 31 - AT - Service TaxClassification of services - Subscription Agreement - import of services - place of providing of services / supply of services - services provided by M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC, situated outside India - respondent agreed to pay as ‘Management underwriting commission and selling commission’ for the service provided by them - whether classifiable as Banking and other Financial Services or as underwriting services? Held that:- The role of an underwriter as defined under the relevant SEBI Rules adopted in the Finance Act,1994 on the issue of securities to shareholders or public is to bear the risk of non-subscription of securities/bonds offered and to subscribe that portion of the securities/bonds issued against the underwriting commission agreed to be paid to them. In the present case, it is clear that the Respondent issuer issued bonds of value of US $500,000,000 which are convertible into equity shares on maturity and the lead managers viz. M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC assumed the responsibilities to facilitate subscription of the bond by general investors outside India and in the event they fail to achieve 100% subscription of the general investors, the said lead mangers undertook to subscribe the unsubscribed bonds. This fact has not been disputed by the Revenue. The services provided by the foreign service provider are akin to the definition of the ‘underwriting services’ and not ‘Banking or other Financial service’, particularly merchant banking service. No doubt, under scope of merchant banking, the ‘underwriting’ is also as an activity, but considering the overall stipulation and conditions in the subscription agreement dt.24.00.2009 between the Appellant and M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC, it could be safely inferred that even though the amount paid for the services by the Respondent has been described as ‘Management underwriting commission and selling commission’, but the core service provided by the Lead Managers is that of underwriter service and not managerial service for the issue of Bonds as is evident particularly clause 4.1.33 where under it is mentioned that none of the managers has to provide any legal, accounting, regulatory and tax advisors; clause 9 mentions the expenses that are to be borne by the issuer and the Lead Managers. Once, it is concluded that the service provided by the Respondent fall under the category of “underwriter service”, the amount paid by the Respondent to the Lead Managers for the services performed outside India would come under the scope of Rule 3(iii) of Taxation of Services (provided from outside India and received in India) Rules, 2006 and accordingly not chargeable to service Tax. Appeal dismissed - decided against Revenue.
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