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TMI Blog2015 (8) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... g authority confirmed the demand of Rs. 25,49,32,832/- with interest and also imposed penalties under Section 75, 77 and equal penalty under Section 78 of Finance Act, 1944. 3. Ld. Advocate for the appellants submits that as per Section 66A service tax is payable by the recipient of service on the services provided by the persons located outside India and received in India. He submits that entire underwriting service in respect of ADS was performed outside India and meant only for overseas entities and no part of underwriting services was rendered in India. He relies on the Board's Circular No.B11/3/98-TRU dt. 7.10.98 and submits that service tax is levied on underwriting Agency who is registered with SEBI whereas the underwriters in their case are not registered under SEBI Regulations. Therefore, they are not covered under 'underwriting services' for the purpose of Finance Act, 1994. He relied on the definition of "underwriter" provided under clause (116) of Section 65 of Finance Act that "underwriter" has the meaning assigned to it in clause (f) of Rule 2 of the Securities and Exchange Board of India (Underwriters) Rules, 1993. As per SEBI Regulations 3(1), no person sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ively. The word "underwriter" and "underwriting" has the meaning assigned to it in clause (f) of rule 2 and clause (g) of rule 2 of the Securities and Exchange Board of India (Underwriters) Rules, 1993 respectively. Section 65 (105) (z) read with clause 116 & 117 clearly explains that the meaning of "underwriter" and underwriting is as per the meaning assigned in SEBI Rules. Nowhere it stipulates that for Taxability under this service, the underwriter has to be registered with SEBI. Therefore, the appellant's contention that the service rendered by overseas underwriters are not covered in the definition is not acceptable. 6. As regards the appellant's contention on merits that entire service was performed outside India and no part of the service was rendered in India, we find from the underwriting agreement, 18th June 2007, they engaged four underwriters M/s.Merrill Lynch M/s.Morgan Stanley, M/s.Citigroup Global Markets and M/s.Nomura Singapore for raising 130,440,000 ADS shares each representing one equity par value of Rs. 2 per share. It is only meant for an offering and sale of American Depositary Shares in the United States, Canada, Japan and certain other selected jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner either directly or indirectly to the recipient wherever located makes no difference to law in view of the fiction of law enacted in that section. No doubt the underwriter located in India providing Underwriting Service is brought to tax. But the underwriter located outside India providing Underwriting Service or in relation thereto in any manner is brought to tax by specific provision declaring the recipient of such service to be assessee. Therefore, on the above background, the 2006 Rules when read, it shows that rule being subordinate to basic legislation, it cannot defeat the object of section 66A. This can be said for no discriminatory approach made by law treating underwriting service provided by a foreign service provider in par with the same service provided by a service provider in India. Accordingly, Rule cannot cannot override the basic structure of the enactments. 8.4 In August, 1996, the Indian parliament enacted the Depositories Act which provides a legal framework for the establishment of the depositories to record ownership details and effectuate transfers in book-entry form. SEBI established the Securities and Exchange Board of India (Depositories and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RI, dated January 19, 2000, or the Circular issued by the Ministry of Finance, Department of Economic Affairs, Government of India, which permit Indian Companies to issue ADSs in accordance with the procedure laid down thereunder without obtaining any regulatory approvals except in certain cases. 8.9 An Indian company can issue ADRs if it is eligible to issue shares to persons resident outside India under the foreign direct investment scheme. However, an Indian listed company which is not eligible to raise funds from the Indian capital markets, including a company which has been restricted from accessing the securities market by the SEBI, is not eligible to issue ADRs. Accordingly, the appellant was required to make the following filings in connection with the issue of ADSs: * full details of the ADS issue including details of their equity capital structure, the number of ADSs issued, the ratio of ADSs to the underlying shares, amount raised by this issue and amount repatriated with the RBI in the form specified in Annexure C of the Regulations, within 30 days from the date of closing of the ADS issue; * a quarterly return with the RBI in the form specified in Annexu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent the number of equity shares at that time deposited with the custodian or listed to trading on the Indian Stock Exchanges. 8.14 The appellant in page 24 of the prospectus made clear that the Equity Shares to be represented by the ADS offered by the prospectus to be listed for trading on the Indian Stock Exchange approximately 45 days after the closing of any offering of ADS. Also, the depositary bank had the obligation to maintain ADS holder records at the depositary office. 9. Revenue pleaded that underwriting service was rendered in India and appellants had appointed Indian domestic custodian, as per the Custodian Agreement to hold equity shares on behalf of depository. There is a separate agreement dt. 18th June 2007 between the appellant and the Citi Bank to act as a depository and the same may be considered as part of the underwriting service. The appellants relied on Tribunal's decision in the case of Jubilant Life Sciences Ltd. Vs CCE Noida (supra) and we find that though there is a reference to underwriter service, the issue before Tribunal was on classification of service under Banking and Financial Service. 10. Prima facie looking into various aspects of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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