TMI Blog2019 (5) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of the Asian Development Bank, 1956 and the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 and the terms of the agreement entered into by India, the Appellant was not liable to pay any Service Tax. In regard to the applicability of Goods Service Tax on Asian Development Bank and International Finance Corporation, the Government of India issued a Circular dated 01 January, 2019 clarifying that the services provided by the International Finance Corporation and Asian Development Bank are exempt from Goods Service Tax in view of the provisions of the two Acts. This issue was examined by the Division Bench of this Tribunal in COASTAL GUJARAT POWER LTD VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI-I [ 2016 (12) TMI 229 - CESTAT MUMBAI] both with regard to the International Finance Corporation and the Asian Development Bank where it was held that When the enactments that honour international agreements specifically immunize the operations of the service provider from taxability, a law contrary to that in the form of section 66A which legislates such operations into tax net will not prevail. The finding recorded by the Adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rowed by the Appellant could be used for other services/goods in connection with the setting up of the SEZ Unit but does not mention that the funds had actually been used by the Appellant outside the Special Economic Zone - The Adjudicating Authority, therefore, could not have drawn an inference without any evidence that the funds borrowed by the Appellant could have been used outside the Special Economic Zone. The contention of the Appellant that the borrowings were used wholly within the Special Economic Zone entitled the Appellant to examine under the Notification dated 03 March, 2009, as amended on 20 May, 2009, therefore, deserves to be accepted. Appeal allowed - decided in favor of appellant. - Service Tax Appeal No. 50219 OF 2016 - Final Order No. 50630/2019 - Dated:- 29-4-2019 - MR. JUSTICE DILIP GUPTA, PRESIDENT And MR. BIJAY KUMAR, MEMBER (TECHNICAL) Shri Sujit Ghosh, Advocate, for the Appellant Shri Amresh Jain, Authorised Representative of the Respondent ORDER JUSTICE DILIP GUPTA : This appeal seeks to assail the order dated 29 October, 2016 passed by the Principal Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation, but did not deposit any Service Tax on such demands because they were not liable to Service Tax in view of the provisions of the International Finance Corporation (Status, Immunities and Privileges) Act, 1958. 3. In addition to the above agreements, the Appellant also availed loan through ECB from Societe De Promotion Et De Participation Pour La Cooperation Economique (hereinafter referred to as PROPARCO ) for construction and to place into operation the Kochi Terminal. The indicative terms conditions were communicated to the Appellant by PROPARCO by a letter dated 18 December, 2008 before the facility of loan was extended to it. In fact, PROPARCO had raised invoices for commitment charges, front end fees, out of pocket expenses etc. 4. The Appellant was registered under the category of Scientific and Technical Consultancy Service and Business Auxiliary Service . It deposited tax amounting to ₹ 14,00,765/- on the initial payments of commitment charges, front end fees and out of pocket expenses made by the Appellant to PROPARCO March, 2009 and September, 2009 under the category of Scientific and Technical Consultancy servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal Finance Corporation (Status, Immunities and Privileges) Act, 1958 and the Asian Development Bank, 1966 and that the exemptions so provided had an overriding effect on all other applicable laws in India. It was, therefore, stated that they were not liable to pay Service Tax on the fees/charges and reimbursements paid to these Banks for the services received from them. In regard to the PROPARCO, it was stated that the Dahej Terminal had already been commissioned in July, 2009 and currently only the LNG Terminal at Kochi was under construction and, therefore, any ECBs obtained by the Appellant from PROPARCO would be used by it only for the construction and operation of the Kochi SEZ. It was also stated that the Appellant was not setting up any other project and, therefore, the funds obtained by it from PROPARCO cannot also be used for any project in future. The Appellant also stated that in terms of the Notification No. 09/2009-ST dated 03 March, 2009, exemption was provided from Service Tax to all services provided to a developer (including co-developer) or to the units of SEZ whether or not the taxable services were provided within the SEZ, but exemption was provided by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation No. 15/2009-ST to avail the said exemption. The noticee is required to pay the due service tax on reverse charge and after that the noticee would be eligible to file a refund claim as provided in the said Notification................... XXXXXXX XXXXXXX XXXXXXX 23.7 I further find that the noticee in their reply has admitted that they have already deposited service tax for two months i.e March September 2009 which itself reflects that the party had admitted their service tax liability initially and accordingly discharged that same. After admitting the service tax liability for a period the same cannot be denied later on without any statutory backing. Therefore, on the basis of above discussion, I hold that service tax is payable along with interest as demanded in the Show Cause Notice on the commercial charges paid to Proparco. 8. The defence raised by the Appellant that it was not liable to pay any Service Tax in regard to the demand made for services provided by International Finance Corporation or the Asian Development Bank was rejected for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total demand - ₹ 30,06,192/- Demand for period post May 20, 2009 - ₹ 28,55,592/- Demand for the period pre May 20, 2009 - ₹ 1,50,600/- This break up has been pointed out by the learned Counsel for the Appellant keeping in mind the two Notifications dated 03 March, 2009 and 20 May, 2009. The submission is that under the first Notification dated 03 March, 2009, the exemption was by way of refund but under the later Notification dated 20 May, 2009, there is an absolute exemption. 12. In regard to the period prior to 20 May, 2009, learned Counsel for the Appellant submitted that the entire tax liability has been deposited by the Appellant, though it has not been appropriated by the Adjudicating Authority. In respect of the period post May, 2009, learned Counsel submitted that no tax liability arises since the Appellant satisfies condition no. (c) of the proviso to the Notification dated 20 May, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sian Development Bank. The findings recorded in the judgment that the Appellant therein was covered by the immunity are reproduced below : 23. The proposition in the impugned order that appellant is not covered by immunity even if the providers were is premised on the fiction of section 66A that the receiver of service is deemed to have rendered the service. The inference of the adjudicating Commissioner is that if the said service providers had an establishment or office in India, there would have been an exemption to tax because the service rendered by Asian Development Bank and International Finance Corporation are exempt. It cannot be lost sight of that it is the service that is taxable and, owing to its intangibility, the consummation of service is deemed to be complete when a receiver and provider exist. The proposition of the adjudicating Commissioner would create a new dimension to the tax, viz., the geographical location of the provider, which is not envisaged in Finance Act, 1994. The national treatment for service rendered by Asian Development Bank and International Finance Corporation is unconditional tax exemption but, according to the adjudicating Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit any tax, there is no scope for subjecting the recipient to tax in the absence of inclusion in the definition of person liable to pay tax in rule 2 of Service Tax Rules, 1994. This would preclude tax on services rendered by the two entities under section 66 even if these were otherwise taxable and the immunity does not have to emanate from the provisions of Finance Act, 1994 but from the statutes governing the Asian Development Bank and the International Finance Corporation. The two statutes do not predicate the immunities to the presence of the two entities in India but to wherever they may be located in relation to tax liability in India. 27. As adduced supra while analyzing section 66A of Finance Act, 1994, the fiction of taxable service is legislated and thereafter the recipient is legislated as tax payer. When the enactments that honour international agreements specifically immunize the operations of the service provider from taxability, a law contrary to that in the form of section 66A which legislates such operations into tax net will not prevail. [emphasis supplied] 17. Coastal Gujarat Power Limited has been fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 66A of Finance Act, 1994 will not prevail. With the provider being not only immune from taxation but also absolved of any obligation to collect and deposit any tax, there is no scope for subjecting the recipient to tax. There is no need for a separate exemption and existing laws enacted by the sovereign legislature of the Union suffice for the purpose of giving effect to Agreements. 4. Accordingly, it is clarified that the services provided by IFC and ADB are exempt from GST in terms of provisions of IFC Act, 1958 and ADB Act. The exemption will be available only to the services provided by ADB and IFC and not to any entity appointed by or working on behalf of ADB or IFC. 5. Difficulty if any, in the implementation of this Circular may be brought to the notice of the Board. 19. Subsequently, it was clarified by the Circular dated 15 January, 2019 that the Circular dated 01 January, 2019 shall also apply mutatis mutandis to Service Tax also and the appeal filed by the Department in the Supreme Court against the order rendered by the Mumbai Tribunal in Coastal Gujarat Power Ltd. is proposed to be withdrawn. The said Circular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be appropriate to reproduce the relevant portions of the two Notifications dated 03 March, 2009 and 20 May, 2009 and they are as follows : NOTIFICATION NO. 09/2009-SERVICE TAX, DATED : MARCH 3, 2009 G.S.R. 146(E) - In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), and in supersession of the notification of the Government of India, Ministry of Finance (Department of Revenue), No. 4/2004-Service Tax, dated the 31st March, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated the 31st March, 2004, vide, G.S.R.248(E), dated the 31st March, 2004, except as respects things done or omitted to be done before such supersession, the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services specified in clause (105) of section 65 of the said Finance Act, which are provided in relation to the authorised operations in a Special Economic Zone, and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is reproduced below : (c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone except for services consumed wholly within the Special Economic Zone. 24. The Notification dated 03 March, 2009 grants exemption to the taxable services specified in Section 65 (105) of the Finance Act, 1994 provided in relation to the authorized operations in the Special Economic Zone and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone, from the whole of the Service Tax leviable thereunder under Section 66 of the Finance Act. The proviso, however, stipulates that the exemption claimed by the developer or units or Special Economic Zone shall be provided by way of refund of Service Tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone. 25. It would, therefore, be seen that prior to 20 May, 2009, the exemption could be claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund from the competent authorities irrespective of the position that whether such specified services are not consumed within SEZ. 27. A perusal of paragraph 8.2 of the notice given an indication that the claim of the Appellant based on the proviso (c), has not been accepted for the reason the services received by the Appellant from abroad cannot be said to be consumed wholly within the Special Economic Zone. The notice also states that though the funds received by the Appellant have to be used for the purpose of the construction and placing into operation the Kochi Terminal, but the funds borrowed could be used for receiving other services/goods in connection with the setting up of Special Economic Zone Unit. It has, therefore, been stated in the show cause notice that the Appellant could have, in terms of Notification dated 03 March, 2009, paid the Service Tax and subsequently claimed refund. 28. The Appellant in reply to the show cause notice submitted that the ECBs received from PROPARCO had been used by the Appellant in construction of the LNG Terminal within Special Economic Zone in view of the terms and conditions set out by PROPARCO and so th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 In light of the above, it is submitted that although the Noticee has entered into a transaction of ECB loan agreement with a service provider located outside India, the Banking and Financial Services are received and consumed/utilized by the Noticee within the Kochi SEZ. Hence, PLL is eligible for upfront exemption on the Banking and Financial Services received by PLL from Proparco. 3.3.16 Thus, no service tax is payable on import of services by the Noticee from Proparco, which are entirely used for authorized operations in SEZ and consumed wholly within SEZ. Thus, the impugned SCN based on erroneous interpretation of the SEZ Notification and the Amended SEZ Notification, is liable to be set aside. 29. The Adjudicating Authority, however, did not accept the contentions advanced by the Appellant in reply to the show cause notice and repelled them in paragraph 23.6 and 23.7 of the order. These paragraphs have been reproduced above. 30. The observations of the Adjudicating Authority that the services received by the Appellant from a person outside India cannot by any stretch of imagination be considered as services provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rower shall cause for a back to back agreement to be entered between one or more long term Kochi LNG SPA and one or more long term Kochi GSPA up to a capacity of 2.5 MMTPA of LNG. 33. Based on the aforesaid terms conditions set out by PROPARCO, it has been submitted by the learned counsel for the Appellant that the borrowings had been used by the Appellant only for the construction of the LNG Terminal within the Special Economic Zone and so the services would qualify as wholly consumed within the Special Economic Zone . It has, therefore, been submitted that the Appellant would be entitled to exemption from payment of Service Tax in terms of proviso (c) of Notification dated 03 March, 2009, as amended by Notification dated 20 May, 2009. 34. The submission of the learned counsel for the Appellant deserves to be accepted. The show cause notice does not contain a charge that the Appellant had utilized the borrowings for any other service outside the Special Economic Zone. In fact, as noticed above, the show cause notice did acknowledge that the funds received by the Appellant were to be utilized for the construction and placing into operation the Koch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , when they smoke these. The production of wealth, as economists put it, consists in the creation of utilities . Consumption consists in the act of taking such advantage of the commodities and services produced as constitutes the utilization thereof. For each commodity, there is ordinarily what is generally considered to be the final act of consumption. For some commodities, there may be even more than one kind of final consumption. Thus grapes may be finally consumed by eating them as fruits; they may also be consumed by drinking the wine prepared from grapes . 36. The Supreme Court observed that consumption consists in the act of taking such advantage of the commodities and services produced as constitutes the utilization thereof and for each commodity there can be a final act of consumption. The borrowings were to be utilized by the Appellant for the setting up of the LNG at Kochi within the Special Economic Zone and could not have been utilized outside the Special Economic Zone. It cannot, therefore be doubted that the services were meant for consumption within the Special Economic Zone and were consumed within the Special Economic Zone. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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