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M/s Tata Steel Ltd. Versus Commissioner of Service Tax, Mumbai-I

2015 (11) TMI 1049 - CESTAT MUMBAI (LB)

Import of services - Arrangement Fees and Agent's Bank fees - Amount paid to Mandated Lead Arrangers (MLAs) to procure lenders/lender syndicate for the appellant. - services have been received by the appellant-assessee beyond the Indian Territory - Invocation of extended period of limitation - Imposition of penalty u/s 76 & 78 - Held that:- On a careful reading of clause (a) & (b) of Section 66A, it is quite clear that when the service provider is from outside India and the recipient of the serv .....

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ot make any difference. Location of assets, procured as a result of receiving the money which in turn was consequent to the receipt of the said service, is immaterial.

The so called MLAs are none other than the banking and financial institutions and 10 of them put together has extended 90% of the loan and the remaining six banks have extended only remaining 10% of the loan. Thus, keeping in view the trade practices as also the holistic view of the operations, in my view, no distinctio .....

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earned counsel does not hold good.

The contention of the appellant also rejected that, the Agent Bank provided services to the lender banks not to the appellant. Needless to say that the appellant paid fees to the Agent bank in terms of the Facility Agreement dated 10/10/2006. It is inconceivable that the appellant would pay fees to the Agent bank without any service to it. The Agent bank acted mainly as a coordinator between the appellant and the lender banks for various follow-up ac .....

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erally do not provide the precise details to enable the department to issue demand notice. In any case the balance sheet may be a public document but the question is whether the balance sheet or information was given to the assessing authorities. In the present case, the appellants did not provide the information in July, 2007. They did not pay the tax as per the direction of the letter dated 27/08/2007. Under the circumstances, I am of the view that the relevant information was suppressed from .....

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: Shri K M Mondal, Special Counsel ORDER Per P. K. Jain 1. Initially the following points of difference of opinion were referred to me for my views as Third Member: (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 .....

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the original Bench. Accordingly, the original Bench, after hearing the said application for rectification of mistakes, had made the following 2 supplementary questions which have also been referred to me: (i) In the facts and circumstances, whether the services have been received by the appellant-assessee beyond the Indian Territory and hence, not liable to Service Tax as held by Member (Judicial) OR Whether the services have been received within Indian Territory and hence liable to Service Tax .....

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not being repeated by me. 4. From the impugned order dated 20/09/2011 passed by the Commissioner of Service Tax-I, Mumbai, it is seen that the Commissioner has confirmed the service tax demand (including Cess) of ₹ 8,05,24,996/- for the period from 16/6/2005 to 30/11/2007. He has also imposed equal amount of penalty on the appellant under Section 78 of the Finance Act, 1994, besides imposing penalty under Section 76 and charging interest at the appropriate rate under Section 75 of the said .....

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ainable. On this point, I find that both the Ld. Members are in agreement. Hence no further discussion is necessary. 6. From the facts of the case, it is seen that for the purpose of financing its intention acquisitions and capital expenditures, the appellant has entered into various agreements with various non-resident banks for loan/credit facilities. One such agreement is the Facility Agreement dated 10/10/2006 relating to US$ 750 Millions entered into by and between the appellant, M/s. Tata .....

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dard Chartered Bank was appointed as agent mainly for the purpose of coordination between the lender banks and the appellant, the borrower. On account of the services provided by the MLAs and the Agent Bank, the appellant paid arrangement fees including road show expenses to the MLAs and agency fees to the agent bank as per Clause 11.1 & 11.2 of the Facility Agreement. 8. The dispute mainly relates to non-payment of service tax on the arrangement fees including road show expenses paid to the .....

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t covered by the definition of Banking and other Financial services vide Section 65(12) of the Finance Act, 1994. He contended that if the intention of the Legislature was to bring 'borrowing' within the scope of Banking and other Financial Services, in that event, the word 'borrowing' would have also been included in the definition of Banking and other Financial services. In this connection, he sought to take support from the Stock Brokers service in connection with sale or purc .....

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(35) STR 817 and another unreported decision of the Tribunal in Grey Worldwide (India) Pvt. Ltd. vs. CST vide Final Order No. A/3014/15/STB dated 20/08/2015. He also submitted that the agent bank was appointed by the lender banks. Therefore, the agent bank did not provide any service to the appellant-borrower. 10.3. The extended period of limitation is not applicable to the facts of the case. The department was made aware of the relevant facts as early as in August, 2007, where the Show cause no .....

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egarding imposition of penalties, it was contested that the appellant had bona fide belief that no service tax was payable on the arrangement fees and the agent's fees. It was also contended that the issue whether the recipient of service should be located in India or the service should be received in India is a debatable issue as held by the Tribunal in Rajesh Exports Ltd. vs. Commissioner of Central Excise - 2013 (29) STR 147. In such a situation, imposition of penalty is not warranted. In .....

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that in the facts of this case, the Commissioner ought to have extended the benefit of Section 80 of the Finance Act, 1994. 11. Countering the arguments of the learned CA, learned Special Counsel for the revenue made the following submissions: 11.1. In the present case, admittedly the appellant is located in India. The appellant is also the recipient of services of the MLAs and the agent bank for which the appellant has paid fees to them and the said fees have been remitted from India only. The .....

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isplaced. HE also stated that the example of Stock Broker service vis-à-vis Banking and other Financial services given by the learned CA is also equally misplaced. 11.2. Regarding invocation of extended period of limitation, the learned Special Counsel submitted that the appellant did not obtain registration for 'Banking and other Financial services' nor it had furnished the requisite information in the ST-3 Return, thereby suppressing the fact of receipt of taxable services from .....

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e. The real intention was not to pay the requisite service tax. Therefore, no fault can be found with the penalties imposed on the appellant. Learned Special Counsel also submitted that there is no case for waiver of penalty under Section 80 of the Finance Act, 1994 in the facts and circumstances of the case. 11.4. Learned Special Counsel also submitted that during the relevant period, imposition of penalties both under Sections 76 & 78 was permissible as held by the Hon'ble Kerala High .....

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a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely :- (i) 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, .....

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ed or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be the taxable service, and su .....

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provided from outside India and received in India. - Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services, - (i) …. (ii) …. (iii) Specified in clause (105) of Section 65 of the Act, but excluding, - (a) …. (b) …. (c) …. be such services as are received by a recipient located in India for use in relation to business or commerce: [emphasis supplied] Provided…&hellip .....

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ose, they were in need of certain amount of money. For borrowing the said money, appellant took the help of 10 MLAs who themselves are banking and financial institutions. These MLAs, in fact, provided 90% of the loan required. However, the remaining 10% of the loan amount was arranged by them from six other banks. After arranging the said money the amount was given to the appellant. Since the assets which they were procuring was located abroad, the money was used by the appellant abroad. It is t .....

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& (b) of Section 66A, it is quite clear that when the service provider is from outside India and the recipient of the service who has his place of business, fixed establishment, permanent address or usual place of residence in India, then the recipient of such service will be liable to pay service tax. This is also clear from the reading of Rule 3(iii) of Taxation of Services (Provided from Outside India & Received in India) Rules, 2006. As per provisions of this rule, the taxable servi .....

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his place of business, fixed establishment, permanent address or usual place of residence, in India" in clause (b) of Section 66A of the Finance Act, 1994. Harmonious reading of the provisions of clause (b) of Section 66A of the Finance Act, 1994 and the provisions of Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 makes it clear that the recipient located in India is liable to pay tax on the taxable services received for use in relation t .....

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d by the appellant. There is also no dispute that the appellant has remitted fees to the MLAs and the Agent Bank for their services. It is, however, contended that the services provided by them were in relation to 'borrowing' and not in relation to 'lending', therefore, their services are not covered by the definition of 'Banking & other financial services' which includes 'lending' only. It is a common knowledge that lending and borrowing go together. There ca .....

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he banking and financial institutions are eager to extend the loan due to high returns which they are able to get from such borrowers. In such cases, borrowers are not, in reality, paid the total amount but a small fees is charged by the tender. Such fees, in turn is used for the services of the marketing agent, etc. Thus indirectly, even in such cases, it is the borrower who pays for the service in respect of the lending. In case of commercial borrowing or borrowing from international banking a .....

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in my view, no distinction can be made for the services in connection with the loan vis-à-vis borrowing. 18. I, therefore, reject the appellant's contention that the services provided by the MLAs were in relation to 'borrowing' and not in relation to 'lending'. 19. Learned CA for the appellant sought to make a comparison between the definition of 'Banking and other financial services' with that of 'Stock Brokers Service' in connection with sale or purch .....

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. Keeping in view the said trade practices, the definition of the stock broker service clarifies that it is chargeable for both sale or purchase. Services in relation to the lending are different and cannot be compared with the stock broker's services. The contention of the learned counsel does not hold good. 20. I also reject the appellant's contention that the Agent Bank provided services to the lender banks not to the appellant. Needless to say that the appellant paid fees to the Agen .....

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nt is not liable to pay any service tax. As noted earlier, it cannot be said that the services has been consumed abroad because of money raised from the banking and financial institutions was used in procuring the assets abroad. In my considered view, if instead of buying an asset abroad, the appellant would have purchased an asset in India from the very same money borrowed from abroad, there would have been no change in the services received. I am therefore, of the considered view that the serv .....

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sioner of Service Tax, Delhi- 2014 (35) 817 to say that the services provided and consumed outside the Indian Territory will not be subject to levy and collection of service tax. I have gone through the decision of the Tribunal. In that case, the Tribunal has considered the scope and ambit of 'Tour Operator's service' for arranging outbound tours which were provided and consumed outside India as the tourist toured abroad. The Tribunal held that outbound tours operated outside India w .....

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t the amount was used for acquiring assets abroad or in India will not make any difference. The reasoning of the case in respect of tour operator covered by this Tribunal's decision in the case of Cox & Kings India Ltd. (supra) is therefore, not applicable to the facts of the case. Next decision relied upon by the ld. CA is the unreported decision of the Tribunal in the case of Grey Worldwide India Ltd. vide CESTAT Final Order No. A/3014/15-STB dated 20/08.2015 which is similar to the ca .....

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the impugned order dtd. 20/09/2011, the Commissioner has, inter alia, recorded a finding that the appellant had never disclosed to the Department about the payment of arrangement fees and agency fees to the foreign banks. He has, therefore, held that non-declaration of the payment of arrangement fees and agency fees would amount to suppression of fact with an intent to evade payment of tax and hence extended period of limitation is invokable in this case. Accordingly, the Commissioner has confi .....

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taxability on the services received and consumed abroad. Hence the extended period of limitation is not available to the Department. Learned Special Counsel submitted that awareness or acquisition of knowledge by the Department does not obliterate the suppression of fact on the part of the appellant as held by the Hon'ble Gujarat High Court in the case of Commissioner of Central Excise, Surat-I vs. Neminath Fabrics Pvt Ltd. - 2010 (256)ELT 369 (Guj). 25. The invocation of the extended perio .....

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confirmed is for the period 01/04/2006 to 31/03/2007, Even in this period, a demand of ₹ 69,132/- is for the period 01/04/2006 to 30/09/2006 and the remaining demand is for the period 01/10/2006 to 31/03/2007. I find from the chronological sequence of events submitted by the appellant along with the appeal that, department, as early as 12/07/2007 asked the details of overseas payments towards external commercial borrowings for three years. Certain details were furnished by the appellant on .....

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e MLA and Agent Bank's service under consideration, the department issued summons to Shri Praveen Sood, an officer of the appellant. The department again asked the appellant for furnishing the details on 21/07/2008 and from the chronology of events it is evident that the appellant submitted all the required details vide their letter dated 05/11/2008. Thereafter on 01/04/2009, the demand notice was issued. It would thus be seen that the department had informed the appellant as early as on 27/ .....

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ither from the return or submission from the appellant it is practically not possible for the department to issue show cause notice. In view of the above factual matrix it is not possible to accept the contention that the appellant had a bonafide doubt. In my view, even if they had a bona fide doubt, they should have provided the precise information in July 2007 itself so that the show cause notice could have been issued within the normal period of limitation. I also find that the Member (Judici .....

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the present case, the appellants did not provide the information in July, 2007. They did not pay the tax as per the direction of the letter dated 27/08/2007. Under the circumstances, I am of the view that the relevant information was suppressed from the department and extended period of limitation has been correctly invoked. 26. Penalties: I have already held that the extended period of limitation is invocable in this case inasmuch as the appellant has suppressed the material fact by not disclo .....

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'ble Kerala High Court had held that the penalty under Section 76 is for failure to pay service tax by the person liable to pay the same. Therefore, the incidents of imposition of penalty under Section 76 are distinct and separate from those of Section 78. Therefore, penalty can be imposed both under Sections 76 & 78 simultaneously though the offences are committed in the course of same transactions or arise out of the same act. However, in the case of Commissioner of Service Tax vs. Mot .....

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Travels Ltd. vs. Commissioner of Service Tax - 2012 (25) STR 417, the Hon'ble High Court has agreed with the view taken by the Hon'ble Kerala High Court. According to the Hon'ble Delhi High Court, since the amendment has come into force with effect from 16/05/2008, it cannot have retrospective operation in the absence of any specific stipulation to this effect. Faced with the divergent views of the Hon'ble High Courts, I have independently examined the provisions of Sections 76 & .....

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