TMI Blog2013 (5) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... separate remuneration fixed for the two services. Further if at all it is to be considered as one single bundle it is not agreeable that the dominant nature of the service is that of Lead Manager’s services, since JPMS is earning a higher commission by underwriting the issue taking the risk involved. As stated by JLSL, that the issue was wholly subscribed by JPMS, the Lead Manager service was a minimal part of the contract in this particular case. Further “Underwriting Service” is specified in a sub-clause of Section 65(105) which occurs earlier than the sub-clause in which Lead Manager’s Service occurs. So going by the criterion laid down in Section 65A(c) of Finance Act, 1994, the service will get classified under “Underwriting Services”. Therefore holding the view that the “Underwriting Service” rendered by JPMS to JLSL is distinct from the Lead Manager service provided. Since the underwriter service is to be subjected to tax under Section 66A of Finance Act 1994 taking into consideration the place of performance as per Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. In this case Underwriting was done outside India, thus no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue. Initially JLSL did not pay any service tax on payments made to JPMS in this matter. When this matter was noticed during the audit conducted by the officers of Revenue there was discussion between the officials of JLSL and the audit team and both came to the conclusion that service tax is payable only on charges paid for services rendered by JPMS as a Lead Manager and not in respect of services rendered by JPMS as an Underwriter. Based on such understanding JLSL paid an amount of Rs. 22,91,734/- towards service tax and an amount of Rs. 4,62,805/- as interest on 24-12-2007 and included such payments in the six monthly return for the period ending 31-3-2008. 4. Later investigations were conducted by Director General of Anti-Evasion, New Delhi. They were of the view that service tax should have been paid on the entire amounts paid to the JPMS and since JLSL had not paid such tax, a Show Cause Notice was issued demanding service tax for a full amount paid to JPMS taking a stand that extended period to time is invokable for making such demand because there was suppression of information on the part of JLSL in providing information to the department. 5. The difference in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Dollars in immediately available funds, by crediting the same to such account with such bank as the Issuer may have previously specified in writing to the Lead Manager, evidence of such payment taking the form of a confirmation by the common depositary referred to below that it has made the relevant payment to the Issuer. Such payment shall be made against delivery to or to the order of a common depositary (the Common Depositary) for Euroclear and Clearstream of the Global Bond representing the Bonds duly executed and duly authenticated as provided in, and otherwise complying with the provisions of, the Trust Deed. Such Global Bond will be held by the Common Depositary to the order of Euroclear and Clearstream for the credit of, the accounts of the respective subscribers of the Bonds. 4. UNDERWRITING COMMISSION AND MANAGEMENT FEE 4.1 In consideration of the agreement by the Lead Manager to procure subscription and payment for the Bonds as provided above, the Issuer shall pay to the Lead Manager the sum of : (i) an underwriting commission of 1.15% of the aggregate principal amount of the Bonds subscribed; and (ii) a management fee of 0.10% of the aggregate principal amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such funds as a trustee, nor shall the Lead Manager be liable to the Issuer for any interest or other revenue or benefit arising from such funds. If the amount of costs and expenses deducted by the Lead Manager is less than the total itemized costs and expenses payable to or by the Lead Manager on behalf of the Issuer, the Issuer will reimburse the Lead Manager for the amount by which such costs and expenses exceed the sum deducted, and where the amount of costs and expenses deducted by the Lead Manager exceeds the total itemized costs and expenses payable to or by the Lead Manager on behalf of the Issuer, the Lead Manager will reimburse the Issuer for the amount by which the sum deducted exceeds such costs and expenses. 7. The definitions of the two different services under consideration are made taxable under different clauses of Section 65(105) of Finance Act, 1994. These and the definitions in Section 65 of Finance Act, 1994 are reproduced below : (105) taxable service means any service provided or to be provided, (a) ---- (z) to a client by an underwriter in relation to underwriting, in any manner. -------- (zm) to a customer, by a banking company or a finan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirements for issue of the bonds giving publicity for the issue, soliciting clients, receiving and accounting money received from subscribers, listing of the bonds in stock exchanges etc. On the other hand underwriting involves giving guarantee that the issue will be fully subscribed and in the event of the issue not being subscribed fully by the public, the underwriter has to himself subscribe to the issue taking the entire risk on himself. For this guarantee a higher commission has to be paid. In the instant case, JLSL submits that in fact the issue was initially subscribed by JPMS themselves and thereafter they sold bonds in minor quantities to others, as and when market conditions improved. He points out that the service of Underwriting was made taxable from 16-10-1998 itself whereas the services of Lead Manager Service covered by the entry for banking and financial services was taxed only from 19-5-2006. He also points out that the C.B.E. C. had issued circular during the period when Underwriting was taxable and Lead Manger Service was not taxable, stating that Underwriting Services, if provided by Lead Manager is liable to be taxed under Section 65(105)(z). He points out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y classifiable under banking and financial services which is covered by Section 65(105)(zm). He further submits that once the service is held to be classifiable under Section 65(105)(zm) the service will fall under category 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 and hence it would become taxable. 13. We have considered arguments on both the sides. We are not in agreement with the argument of Revenue that the service of Underwriting has to be necessarily provided by merchant bankers. We also do not agree with the argument that providing Underwriting Service is incidental to the services rendered as a Lead Manager to the issue. This is basically because the latter involves basically organizing an event viz. issue of the FCCBs and the former involves financial risk to the underwriters and the two matters are totally different in nature. We are also not in agreement with the argument that the contract has to be considered as a whole and classified considering it as a single service and subjected it to tax. This is because the services are distinct in nature and the contract lays down the services as distinct services with separat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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