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2015 (8) TMI 958 - CESTAT CHENNAI

2015 (8) TMI 958 - CESTAT CHENNAI - 2016 (42) S.T.R. 113 (Tri. - Chennai) - Waiver of pre deposit - Underwriter service - Assessee contends that the underwriting was rendered by the foreign underwriting firms and the entire service was rendered outside India and no part of the service was performed in India - Held that:- as per RBI Clarification No.13 relating to guidelines for ADR/GDR issues by the Indian Companies the appellants are free to access the ADR/GDR markets through an automatic route .....

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ervice provider to the Indian law for taxation. Therefore provision of taxable service by a party outside India to the recipient in India is sufficient compliance to taxability.

Prima facie looking into various aspects of the case and without prejudice to the grounds of appeal of appellant as well as contentions of Revenue and also taking into consideration the limitation aspect, it appears that the service provided having "relation to" underwriting of shares of the Indian Company (ap .....

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r the Respondent : Mr M Rammohan Rao, DC (AR) ORDER Per: R Periasami: 1. The stay application is filed by the appellants for waiver of predeposit of ₹ 25,49,32,832/- along with interest and penalty. 2. The appellants are manufactures of copper anode, copper cathode etc. and discharging Central Excise duty and they are also registered with service tax for rendering various services. Two show cause notices dt. 11.11.2011 and 16.5.2013 were issued to the appellants demanding service tax under .....

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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 w .....

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tions 3(1), no person shall act as underwriter unless he holds a certificate granted by the Board under these regulations. He also submits that entire show cause notice proceedings are hit by limitation as they have disclosed the factum of payments made to overseas parties in their balance sheet which is a public document. Further Internal Audit team visited in 2008 but the first show cause notice was issued on 11.11.2011 invoking the extended period and the second show cause notice was issued o .....

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t Life Sciences Ltd. Vs CCE Noida - 2013 (29) STR 529 (Tri.-Del.). 4. The Ld. AR for the Revenue reiterated the findings of the order and submits that meaning of "underwriter" defined in the Finance Act refers SEBI Regulations only for the limited purpose of assigning its meaning. Underwriting service is an activity and registration of underwriter under SEBI is not a mandatory requirement for taxing the service. He further submits that Board's circular does not come to the rescue o .....

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the entire service was rendered outside India and no part of the service was performed in India. They also pleaded on limitation. Section 65 (105) (z) of the Finance Act, 1994 is a charging section for levy of service tax when the service is rendered to any person by an underwriter in relation to underwriting in any manner. Section 65 clause (116) & (117) of the Act defines the meaning of "underwriter" and "underwriting" respectively. The word "underwriter" and .....

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ant'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 re .....

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of Economic Affairs. 8.1 Section 66A of the Finance Act, 1994 prescribes levy of service tax on services provided by service provider abroad having fixed establishment thereat to a person in India having fixed establishment in India. It is fundamental principle of that section to treat the recipient of such service as provide thereof and levy tax on such service. This is with a view to obviate the difficulty of bringing a foreign service provider to the Indian law for taxation. Therefore provis .....

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overed by Rule 3(ii) of the said Rules. It is not necessary that the foreign service provider should perform the service in India for the reason of use of the words "as if" in Section 66A of the Act to declare such recipient liable being an "assessee" by Section 65 (7) of the Act. The performance envisaged by Rule 3 (ii) of 2006 Rules is to be understood in the context of Section 66A of the Act but not in isolation thereof. Therefore, when a service is related to performance .....

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efore, such taxing entry for the purpose section 66A of the said Act presupposes that the underwriter providing service 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 .....

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re 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 Participants) Regulations 1996, as amended, which provide for among other things, the registration of depositories and participants, the rights and obligations of the depositories, .....

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s mandatory for all investors. The SEBI (Disclosure and Investor Protection) Guidelines, 2000, as amended, provide that no company may make a public or rights issue or an offer for sale of securities unless the company enters into an agreement with the depository for book entry of securities already issued or proposed to be issued to the public or existing share holders and the company gives an option to subscribers, shareholders or investors to receive the security certificates or hold securiti .....

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ceive the security certificates or hold the securities with a depository. The Indian Companies Act provides that Indian companies making any initial public offerings of securities for or in excess of ₹ 100 million ($ 2.05 million) should issue the securities in book-entry form. 8.8 The issue of American Depositary Shares (ADSs) by an Indian company is primarily regulated by the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 19 .....

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n 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 A .....

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; a return of allotment with the Registrar of Companies, at the time of issuance of the new equity shares. 8.10 The depositary bank was required to maintain ADS holder records at its depositary office. It was also to maintain facilities in New York to record and process the issuance, cancellation, combination, split-up and transfer of ADSs and, if applicable, ADRs. 8.11 With the aforesaid regulatory measure summarily stated, the Equity Share at par value of ₹ 2/- per share represented one .....

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ower generation business of appellant in India; • planned capital expenditures; • planned and other potential acquisitions of complimentary business that was to be determined attractive opportunities; and/or • general corporate purposes. 8.12 The obligation of the Underwriters was to pay and accept delivery of the ADS offered by the prospectus supplement and the company's prospectus subject to certain conditions. The Underwriters offered the ADS directed to the public at the i .....

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present each ADS before depositary bank for cancellation and upon cancellation, the depositary bank had obligation to transfer to the ADS the corresponding number of underlying Equity Shares at the custodian's offer subject to Indian law. The depositary bank was to deliver equity shares only upon surrender of the ADS to the 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 pros .....

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