TMI Blog2019 (1) TMI 1885X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions as well as the respective rights and liabilities. The predominant services provided by Jefferies to the respondent is in the nature of underwriting services and not the Merchant Banking Service, as classified by the Revenue - the transactions between the parties has taken place outside India and their remuneration has also not been remitted from India - the demand of service tax is bad, both for mis-classification and also on the ground of territorial jurisdiction. Appeal dismissed - decided against Revenue. - Service Tax Appeal No. 55775 of 2013 - FINAL ORDER NO.51635/2019 - Dated:- 31-1-2019 - MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) AND MR. BIJAY KUMAR, MEMBER (TECHNICAL) Shri G. R. Singh, Authorised Representative for the appellant Shri B. L. Narasimhan Shri Rachit Jain, Advocates for the respondent ORDER During the year 2006-2007, the respondent M/s Radico Khaitan Limited had raised Foreign Currency Convertible Bonds (FCCBs) worth USD 50 million. For this purpose, Radico Khaitan Limited (in short Radico) engaged M/s Jefferies International Limited as lead manager and sole placement agent in connection with the structuring, issuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner relied upon the FAQs issued by CBEC which clarified that if a person, acting as a lead manager for issuance of shares of a body corporate, also undertakes the activity of underwriting of the issues, then such person would be covered under the category of underwriters for the purposes of levy of service tax. 7. Further, the legal agreement MOU dated 30.06.2006 provided that for its services, Jefferies would be paid a management and underwriting commission at the rate of 2.5% of the principal amount of bonds issued. The agreement specified that the underwriting commission constituted 99% of the total commission. For this reason, the Commissioner has held that it is evident that the fee paid/ payable to Jefferies constituted a commission wholly in respect of underwriting services. 8. For the reasons above, it was held that Jefferies was mainly performing underwriting services for Radico. Further, under the service tax provisions, underwriting services are considered as performance based services falling under the second category of Rule 3(1) of the Import Rules, 2006. Since none of these services were performed fully or partly by Jefferies in India, the underwriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider that the said letter dated 20.04.2006 was the relevant evidence in the present case and established the fact that the foreign service provider was indeed engaged and appointed by the noticee as lead manager and sole placement agent for certain purpose and provision of services for raising FCCB of US $50 Milliions in the FY 2006-07. The Adjudicating Authority erred in taking into account only the agreement MOU between the said parties dated 30.06.2006. It is pertinent to take note of the relevant fact that the transaction between the parties were initiated only through letter agreement dated 20.04.2006 and it is relevant as to the purpose, the motive and the intention behind the transaction to be carried out between the parties. Also, it is not disputed that only the letter/agreement dated 20.04.2006 was translated into a formal agreement MOU between the parties vide subscription agreement dated 30.06.2006. 13. The Adjudicating Authority further failed to consider the essence and substance of the said formal agreement dated 30.06.2006, that the essential purpose remained the same i.e. to issue US$ 50 Millions 3.5% convertible bonds due 2011. Also, it is pertinent to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or purchase obligation on part of Jefferies. (c) Work of M/s. Jefferies would include structuring, issuance sales of equities linked securities of the notice. (d) M/s.Jefferies would be paid fess based on total sales of securities and would be reimbursed their expenses. The fees paid would not be commission for underwriting. Further, fees were quantified as 2.5% of gross proceeds from sale of the securities and it was further specified that in addition, the noticee/respondent will reimburse M/s.Mefferies all expenses of travel incurred in relation to its performing the service hereunder, including fee expenses of legal and professional advises incurred by M/s. Jefferies. (M/s.Jefferies raised invoices also in this regard). The Adjudicating Authority failed to consider that the said letter dated 20.04.2006 was a relevant evidence in the present case and established the fact that the foreign service provider was indeed engaged and appointed by the noticee/respondent as lead manager and sole placement agent for certain purpose and provision of services for raising FCCB of US$50 Millions in the FY 2006-07. The Adjudicating Authority erred in taking into account only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same were disbelieved on considering as not acted upon and further the allegation was based on the letter dated 20.04.2006, which provided that Jafferies will not undertake underwriting obligation. The Revenue ignored the specific mention in the letter dated 20.04.2006, that the parties shall be entering into a formal agreement, which shall define the terms of the transactions and obligations morefully. Further, in terms of the said clause, admittedly, the parties have entered in a Formal Agreement dated 30.06.2006, which provided the detailed terms and conditions and further specifically provided as regards the obligation of Jefferies to under-write the issue. The said agreement also provided that 99.1% of the remuneration/commission shall be considered underwriting commission and or only 1% shall be attributable towards Merchant Banking Service. 16. Ld. Counsel further refers to Section 65 A(c) of the Finance Act, which provides that in case a service cannot be classified in accordance with the rule of specific description over general description (Section 65 A(a) and rule of essential character (Section 65A(b)), then such service is to be classified under the sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the service tax would not be payable under the category of Banking and other financial services. Similar view being in the present case, the ld. Counsel states that the issue is squarely covered in favour of the appellant therein. Accordingly, he prays for allowing the appeal with consequential benefits. 18. Having considered the rival contentions, we find that at the adjudicating stage, the respondent had produced signed copies of the agreement dated 30.06.2006, which were examined in detail along with the reply to the show cause notice. The Adjudicating Authority found that in the facts and circumstances hereinabove mentioned, that the said agreement dated 30.06.2006 is a legal document. Thus, we find that the allegation in the show cause notice for disbelieving the said agreement dated 30.06.2006 is flimsy. We further find that the agreement dated 30.06.2006 has also got a binding effect on the parties to the transaction, that is between the respondent and the Jefferies, as it is provided in the letter dated 20.04.2006 that the parties shall enter into a formal agreement duly signed by both the parties, which shall morfefully define the terms and conditions of service or the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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