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2015 (6) TMI 695

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..... the Appellant : Shri A R Krishnan, CA, Girish Raman, CA For the Respondent : Shri K M Mondal, Special Counsel ORDER Per: P S Pruthi: This appeal is directed against the Order No. 09/STC-1/SKS/11-12 dated 19.09.2011 passed by the Commissioner of Service Tax, Mumbai-I holding that service is provided by the appellant under the category of 'Banking and other Financial services', confirming Service Tax liability of ₹ 8,05,24,006/- confirming demand of ₹ 9,76,01,442/- (including interest) already paid by them, imposing penalty of ₹ 8,05,24,006/- under Section 78 of the Finance Act imposing penalty under Section 76 of the Finance Act, 1994 and appropriate interest under Section 75 ibid. 2. The facts are that M/s Tata Steel Ltd. (TSL), the appellant, borrowed, by way of 'syndicated loans', for their international acquisition and capital expansion, from various overseas banks. In order to find lenders / lender syndicate, the appellant [ a borrower] appointed various banks/institutions abroad as Mandated Lead Arrangers (MLAs). The MLAs were paid arrangement fees which is essentially a fee paid for arranging lenders/lender syndicate fo .....

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..... cure finance for the appellant. These expenses are part of the loan Arrangement fees. Referring to the definition of 'Banking and Financial Services' the Commissioner held that these services are provided in relation to lending and are covered under the definition of this taxable service. That is, the loan arrangement fee paid to the banks by the appellant is nothing but a service in relation to lending. The other part of the demand pertains to Agency fee which is charged by the banks appointed as Agent bank to facilitate the process of administrating the loan. The functions of the agents are; inter-alia - i. Maintaining contact with the borrower and representing the view of the lenders. ii. Monitor: Monitoring the compliance of borrower regarding repayment of loan and other conditions of loan. iii. Postman and Record-Keeper: it is the agent to whom the borrower is usually required to give notice. iv. Paying Agent: The borrower makes all payments of interest and repayments of principal and any other payments required under the loan agreement to the Agent bank. The agent bank passes these monies to the banks to whom they are due. Similarly the banks advance funds .....

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..... ernational and Indian banks to be selected by the Mandated Lead Arranger in consultation with the Borrower.............. Arrangement Fees: 1.2% of the facility amount payable upfront.............. Agency fee: US $ 15,000 per annum. The fees will be paid annually in advance, initially within 5 days of the signing the Facility Agreement or upon the date of first drawdown, (whichever is earlier), and on each anniversary thereof................. The learned Counsel also shows the Facility Agreement between Tata Steel, the MLA's comprising of 10 banks, the Agent Bank, and the Lending Banks. This agreement facilitates loan of US $750,000,000/- million for the borrower i.e. Tata Steels Ltd. 6.1 Referring to the above Agreements, the learned Counsel argued that: (i) The Order-in-Original seeks to tax the Arrangement services as services 'in relation' to 'lending' on the premise that lending is covered under a specific clause under 'banking and other financial services' viz., clause (ix) - 'lending'. The MLAs services are to the borrower and not to the lender and hence it is 'in relation to' borrowing not in relation to 'lendin .....

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..... t as a lender. (c) All the lenders are not necessarily arrangers and all arrangers are not necessarily lenders. [Arrangers have also become lenders for about 77% of the facility. Hence the two activities viz. 'arrangement' and 'lending' are distinct. 6.3 The learned C.A. also argued that for the Arrangement fee paid prior to 18.04.2006, the importer of service was not liable to Service Tax as this is the settled position in law. In this regard he referred to Board Circular No. 276/08/09-CX 8A dated 26.09.2011 which also rescinded Board Circular 275/7/2010-CX 8A referred to by the Commissioner in his order. He summarised the demand confirmed period wise and fee wise as below:- Period-wise Demand Amount (Rs. Crores) Arrangement fee prior to 18.4.2006 2.83 Arrangement fee Post 18.4.2006 5.20 Agent Bank's fee (all post 18.4.2006) 0.02 Total tax demand 8.05 6.4 Learned Counsel relied on i. Kingfisher Airlines Pvt. Ltd. Vs. Commissioner of Servic .....

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..... Banking and other Financial Services in which the service in question falls, he stated that the relevant provisions i.e. 65(105)(zm), which provides for levy of Service Tax on service provided in relation to Banking and other Financial services as well as Section 65(12) which defines 'Banking and other Financial services' are clearly mentioned in the show-cause notice. According to him, the failure of mentioning the relevant clause of definition of Banking and Financial Services is not important when the allegations are loud and clear. He relied on G.J. Glass Vs. Commissioner of Central Excise - 1991 (51) ELT 521 (Tri), para 9 and on Borivali Hosiery Mills Vs. CC CE - 1991 (56) ELT 76 (T) para 12. 7.3 On the issue of limitation, his contention was that the appellant never declared the payment of Arrangement fees and Agency fees to the department. Further, the fact that they were aware of the leviability of Service Tax is indicated by the payment of ₹ 9,76,01,442/- by them out of the total demand of ₹ 17,79,10,086/-. He relied on Tribunal's judgment in the case of Housing Development Corporation Ltd. Vs. Commissioner of Service Tax, Ahmedabad - 2012 ( .....

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..... ed Bank, Sumitomo Mitsui Banking Corporation. (iii) The Original Lenders, namely - ABN Amro Bank, Banca Monte De Paschi Di Siena S.P.A., Banca Intesa S.P.A., The Bank of Tokyo, Calyon, Citibank N.A., DZ Bank AG Deutsche Zentral, Export Development Canada, First Commercial bank; Malayan Banking Berhad, Mizuho Corporate Bank Ltd., National Bank of Dubai, Societe Generale, Hong Kong, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, Taiwan Cooperative Bank, Manila. The Facility Agreement is an exhaustive Agreement running into 100 pages and provides the terms of lending, repayment, cost of utilization, etc. Seciton 9 clause (24) spells out the role of the Agent and the Arrangers. At Section 9 clause (24.3) the role of Arranger was stated as - except as specifically provided in the Finance Documents, the Arranger has no obligations of any kind to any other Party under or in connection with any Finance Document. Clause 24.4 states No fiduciary duties - (a) nothing in this agreement constitutes the Agent or the Arranger as a trustee or fiduciary of any other person, (b) neither the Agent nor the Arranger shall be bound to account to any Lender for any sum or the prof .....

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..... her, the definition of Banking and Financial Services is defined under Section 65(12) as under:- banking and other financial services means - (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely :- (i) .. (ii) to (viii) . (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 9.1 The learned C.A's contention is that only the activity of 'lending' is covered under this service as it does not refer to the term 'borrowing' under clause (ix) above and in the present case, the service provided to the appellant is not of lending but of borrowing. To elucidate his contention, the learned C.A. gave the example of a Stock broker service, which defines the service in connection with sale and purchase and covers both s .....

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..... tatutory provisions. (a) First, Section 66A, the charging Section, which passes liability to service receiver on services received from outside India, clearly provides under clause (b) that the services should be such as received by a person (hereinafter referred to as a recipient), who has his place of business in India. There is no doubt that the appellant have their place of business in India. (b) Secondly, whether the service is received in India from abroad is determined by the Taxation of Services (Provided from Outside India and received in India) Rules, 2006. The Rule 3 states that Subject to Section 66A of the Act, the taxable service provided from outside India and received in India shall, in relation to taxable services.......... . In our view, the services are received in India, which we will clarify below:- Rule 3 further goes on to state in para (iii), as under:- (i) and (ii) ................... (iii) specified in clause (105) of section 65 of the Act, but excluding- (a) sub-clauses (zzzo) and (zzzv); (b) those specified in clause (i) of this rule except when the provision of taxable services specified in clauses (d), (zzzc), (zzzr) and (zzzzm .....

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..... ervice provided from outside India and received in India. 11. Reliance is placed by the appellant on Board's Circular dated 19.4.2006 (supra). This Circular only states, in para 4.2.3, that ..........it may be noted that only service received in India are taxable under this provisions.......... . This Circular does not help the appellant as we have already held that service in question is received in India. 11.1 The reliance on the case of Cox and Kings India Ltd. (supra) also does not come to the support of the appellant. In the case of Cox and Kings, the issue was about the service provided by tour operators on outbound tours. It was held by the Tribunal in paras 18(j) and (k) that:- (j) In respect of the services provided by the assessees for booking of passage for travel by air from India, they were assessed to and service tax levied and collected under the taxable category of air travel agent . It is only in respect of services provided for outbound tours; at foreign locations and on the consideration received therefor, that the present proceedings relate to. On the authority of the precedents i.e. Ahmedbhai Umarbhai Co and Ishikawajma-Harima Heavy Indus. Ltd .....

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..... abroad is not the issue at hand. 11.2 The next case relied upon by the appellant is of Rajesh Exports Ltd, (supra). The learned C.A. referred to para 11 of the judgment, which is extracted below:- 11. Assuming that Silverdale's services are covered by the definition of BOFS, we have to consider the basic question which was in the focus of the rival submissions made by the learned counsel and the learned Deputy Commissioner(AR). This is the question whether the services provided by Silverdale were received by REL in India. It has been argued on behalf of the assessee, on the strength of a circular of the CBEC as well as certain decisions of the Hon'ble Supreme Court, that there can be no levy of service tax on REL under Section 66A of the Act unless the service provided by Silverdale abroad is shown to have been received in India by REL. It has been argued that those services were totally performed abroad and not received in India and therefore the assessee is not liable to pay service tax on those services. Section 66A of the Act does not explicitly require receipt of service in India; it rather refers to receipt of service by a person who has his place of business .....

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..... d on behalf of Intas. In the case of KPIT Cummins, software development and consultancy service was provided by branches of KPIT abroad to overseas customers. The common stream of facts in all the three cases is that services were rendered /provided abroad and therefore not leviable to service tax in India. Whereas in the present case of Tata Steel, the services have been received in India under Rule 3 of the Taxation of Services (Provided from Outside India and received in India) Rules read with Rule 2 of Service Tax Rules, which defines person liable to pay tax on services received from outside India, further read with Section 66A of the Finance Act, 1994. Therefore, the three judgments cited by the learned C.A. have no bearing whatsoever on the facts of the present case. 12. We note that the total amount of demand relates to the period 1.10.2005 to 31.3.2007. Part of the period is prior to 18.4.2006, when the Section 66A was introduced. Section 66A specifies that the charge of Service Tax on services received from outside India shifts to the receiver services in India. It is now a settled matter that Service Tax on import of service on reverse charge mechanism (on receiver .....

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..... ng the case and entered into correspondence with the appellant. This does not mean that the extended period of time cannot be invoked. The correspondence started in july, 2007 and the show-cause notice was issued in March, 2009 demanding duty for the period 1.10.2005 to 31.3.2007. It is quite natural that the department will take some time to assess the case after examining all documents and recording the statements of the appellant's officials. The fact remains that the appellant never disclosed the activity of receiving services from MLAs abroad. 14.1 The learned Special Counsel correctly placed reliance on the case of Housing Development Corporation Ltd. (supra), in which it was held that the fact remains that after the definition of lending was amended and Service Tax definition included the activity in relation to lending for levy of Service Tax, the appellant should have intimated the fact to the department and checked up whether such collection of amount in relation to lending would be leviable to tax or not..... . Further, it was held in the case of Spie Capag S.A. Vs. Commissioner of Central Excise, Mumbai - 2009 (243) ELT 50 (Tri-Mum), the least that was expected .....

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..... nding amount of Service Tax. Appropriate interest as applicable under Section 75 of the Act is also payable. We uphold the confirmation of penalty of ₹ 5,22,35,092/- under Section 78 of the Finance Act, 1994. 17. The appeal is disposed of in the above terms. (Pronounced in Court on ....................) Per: Shri Anil Choudhary: 18. I have gone through the order recorded by my learned brother Shri P.S. Pruthi, Hon'ble Member (Technical) as I do not fully agree with order, I am recording my separate order. 19. So far the question of taxability of 'Arrangement fee's is concerned, I find that the same is paid vide the agreement between the Tata Steel Ltd. (borrower) and the Loan Arranger Bank. The remuneration for the arrangement was paid by the borrower-assessee to the Arranger Bank. I further hold that the word 'lending' appearing in clause (ix) of Section 65(12) will not include borrowing. As borrowing is not included under the Section 65(12), I hold that no Service Tax is exigible on the 'arrangement fee' paid by the appellant company to the Arranger Banks. The role of the Arranger was to procure the lenders for the appellant (borro .....

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..... respect of external commercial borrowing including arrangement and agency fees in question. The Revenue has taken a period of little more than 19 months in making up of its mind as to the taxability of the two payments made by the appellant herein, in the subject matter of the appeal. I find that there is no suppression of facts and/or contumacious conduct on part of the appellant company. Accordingly, I hold that the extended period of limitation is not invocable by the Revenue. Thus, the appeal succeeds on this ground also. DIFFERENCE OF OPINION 23. In view of the difference of opinion between the two Members, the matter is placed before the Hon'ble President for reference to the Third Member on the following points:- (i) Whether in the facts and circumstances of the case, the Arrangement fee and Agent's Bank fee are taxable in the hands of the appellant company in view of the findings recorded by the learned Member (Technical) Or Whether the same was not taxable in view of the findings recorded by Member (Judicial). (ii) Whether in the facts and circumstances of the case, the extended period of limitation is invocable and penalties under Section 76 78 .....

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