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TMI Blog2019 (1) TMI 1885X X X X Extracts X X X X X X X X Extracts X X X X ..... ementioned letter was formalized by way of an agreement dated 30.06.2006 which provided that Jefferies would subscribe (underwrite) or procure subscription of the bonds of Radico. Against such services, Jefferies was compensated with a management and underwriting commission equivalent to 2.5% of the principal amount of the bonds. The underwriting commission constituted 99% of the total commission. For the said services Radico paid Rs. 11.47 crores to Jefferies, on which demand for service tax was raised. 3. Under the show cause notice dated 14.10.2011, Commissioner of Service Tax alleged that Jefferies was rendering Merchant Banking Services (under Banking and other financial services) to Radico and not underwriting services. These allegations were made on the basis of the clause in letter dated 20.04.2006, which provided that no underwriting services or obligations were fastened on Jefferies. The agreement dated 30.06.2006 was taken as ineffective on account of it not being signed by the parties. 4. It was also alleged in the show cause notice that Radico has misdeclared the 'Merchant Banking Services' procured by from Jefferies as 'Underwriting Services' in order to evade payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ws:- "7. After hearing both the parties and on perusal of record, it appears that in the instance case the main controversy is pertaining to the agreement between the service provider and service recipient. It is the allegation that in the memorandum of understanding, the scope has been enhanced and the new document has been given at the time of adjudication. The contention of the department is that both the agreements has different contents. When it is so, then we set aside the impugned order and remand the matter to the original authority to verify the genuineness of the agreement and decided the issue denovo but by providing an opportunity of hearing to the respondent. Fresh evidence, if need be, may be admitted as per law. 8. In the result, appeal filed by the Revenue is allowed by way of remand. C.O. also disposed of accordingly". 10. Against the above referred Final Order No. 50389/2018 dated 25.01.2018, the Respondent preferred an appeal before the Hon'ble Delhi High Court. The Hon'ble Delhi High Court, vide its order dated 17.07.2018, has set aside the Final order of the Hon'ble Tribunal holding as follows: i. That the ld. Commissioner had rendered elaborate findings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate that even in terms of the later agreement dated 30.06.2006, the relationship between the respondent and the foreign service provider remained as that of an "issuer of the FCCB' and 'manager to the issue of the FCCB' respectively. Thus, the 'underwriting' was only optional accessory or auxiliary service vis-a-vis the essential service provided by the foreign service provider in relation to the raising FCCB of US $ 50 Millions. Therefore, the findings of the Adjudicating Authority were perverse to the extent that in terms of the later and binding agreement dated 30.06.2006, the service provided were 'underwriting service' and not 'Banking and Other Financial Service". 14. Ld. Authorised Representative urges the grounds of appeal of Revenue, which are as follows:- "The Adjudicating Authority erred in holding that the services rendered by the notice were not covered under the category of taxable services namely Banking and other Financial service as stipulated under Section 65 (105)(zm) of the Act and the banking and other Financial service described under Section 65(12) of the Act, ibid, and that the same were classifiable under Underwriting Service as defined under Section 65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the letter agreement dated 20.04.2006 was translated into a further agreement MOU between the parties vide subscription agreement dated 30.06.2006. The Adjudicating Authority further failed to consider the essence and substance of the said further agreement dated 30.06.2006. It is clear from the preamble itself of the agreement dated 30.06.2006 that the essential purpose remained the same, i.e. to issue US$ 40 Millions '3.5% convertible bonds' due 2011 and in addition an option to an additional US$ 10 Millions '3.5 convertible bonds' due 2011. Also, it is pertinent to take note of the fact that that even in terms of the agreement dated 30.06.2006, the foreign service provider remained the manager to the issue of FCCB for raising FCCB of US$50 Millions. The notice granted only an option to the manager, i.e. the foreign service provider, to subscribe to the bonds and, moreover, this option was at the discretion of the said service provider. Thus, the Adjudicating Authority failed to appreciate that even in terms of the later agreement dated 30.06.2006 the relationship between the noticee/respondent and the foreign service provider remained as that of an "issuer of the FCCB" a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (zm). By application of the principal under Section 65A(c), the classification of the services rendered by the Respondent would be under the clause with precedes the other, i.e. underwriting services under Section 65(105)(z) of the Finance Act. 17. Ld. Counsel further relies on the ruling of this Tribunal in the case of Jubilant Life Sciences Limited Vs. Commissioner of Central Excise, Noida - 2013 (29) STR 529 (Tribunal-Delhi),wherein Jubilant had issued three series of FCCB and J.P. Morgan Securities Ltd., USA (JP Morgan) had acted as their Lead Manager. In addition to acting as the Lead Manager, J.P.Morgan Securities Ltd. was also the underwriter for Jubilant. The Revenue in this case sought to classify the services performed by J.P.Morgan as those of a Merchant Banker under Banking and other financial services on the ground that underwriting services were only incidental to the main activities of the Merchant Banking, J.P. Morgan, being the Lead Manager. As per Revenue, the person, who provides services as a Merchant Bankers/Lead Manager, has also to provide underwriting services while the reverse may not hold true. This Tribunal allowing the appeal of Jubilant held that und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that Jefferies have not issued any invoice for the underwriting services and the respondent has also not made any remittance from India. The payment has been made to Jefferies, by way of appropriation out of issue proceeds, which is evidenced by them - cross receipts, which is as per the provisions of Clause-V of the subscription agreement. Further, Clause 21 of the agreement dated 30.06.2006 states that "this agreement and the offering circular constitute the entire agreement and the understanding of the parties and supersedes any previous agreement between the parties relating to the subject matter of this agreement. 19. In this view of the matter, we hold that the execution of the agreement dated 30.06.2006 overrides the letter dated 20.04.2006. 20. Accordingly, we hold that 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. We further, find that the transactions between the parties has taken place outside India and their remuneration has also not been remitted from India. Accordingly, the demand of service tax is bad, both for mis-classification ..... X X X X Extracts X X X X X X X X Extracts X X X X
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