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TMI Blog2024 (7) TMI 1460X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Management Consultant Services. Department had conducted audit of the appellant for the period 2007-08 to 2010-11 and it was observed that the appellant was having income in the form of "Call Option Fee" but has not paid service tax treating the said income non- taxable income. The following amounts were found to have been received by the appellant, in foreign currency, as 'Çall Option Fee'. Year Amount received (Rs.) 2007-08 41,16,72,000/- 2008-09 37,79,35,500/- 2009-10 0 2010-11 12,49,88,938/- 2011-12 18,38,89,162/- Total 1,09,84,85,600/- 3. Department formed an opinion that the said amount is received for rendering taxable service called "support service of business or commerce" as defined under section 65 (104c) and taxable under section 65 (105) (zzzq) of Finance Act, 1994. Rule 5 of service tax (Determination of Value) Rules, 2006 has also been invoked alleging that the amount received in the name of "Call Option Fee" has to be an amount includable in the taxable value. Accordingly, service tax amounting to Rs.12,94,09,931/- (Twelve Crores Ninety-Four Lacs Nine Thousand Nine Hundred and thirty-one only) including education cess and highe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis, being contrary to the judgment dated 20 January 2012 of the Hon'ble Supreme Court of India in the Vodafone case (supra). The Framework Agreement provides the event involving change in FDI rules removing the restriction of foreign holding to 74% as merely a trigger event for exercise of "the Call Option" and not as the reason for entering into the option agreement. It would be relevant to note the recitals in the Framework Agreement which lucidly explain the reasons for entering into the agreement specifically the clause 4.3 of the said Framework Agreement. It is insisted that there is no reason to give an interpretation contrary to the express wordings of the Framework Agreement. 7. Ld. Counsel has also relied upon the decision of Hon'ble Supreme Court in the case of Vodafone International Holdings vs. Union of India and another reported in 2012 (341) ITR 1 (S.C.) where it has been held that Frame Work Agreements do not confer any right in the company who was granted "the Call Options" (Vodafone in that case). After considering the various clauses including clause 4.1 of Frame Work Agreement the Hon'ble Apex Court held that agreement is to confer call and put options t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butting these submissions ld. Departmental Representative has mentioned that all these submissions as made by the appellant before this bench have meticulously been dealt with in the impugned order and it has correctly been held that the entire transaction in the present case, as envisaged in the FrameWork Agreement, is not a mere "call option" by the appellant to GSPL on the SBP shares. 10. From the facts of the case, Adjudicating Authority found that 'AS' did not have the shares of Vodafone International Holdings BY (hereinafter referred as VIH) initially. It also declined an offer of investment in Telecom Investment India Limited, an Indian company [hereinafter referred as TII] having a beneficial direct or indirect interest of 19- 54% in HEL's issued equity share capital unless helped financially. GSPL agreed and provided financial assistance. After that, AS was provided financial assistance through VIHBV and its associate to purchase shares in the TII, which were offered back to VIH and associated through a holding subsidy structure. The adjudicating authority conceived the entire transaction as under: (a) VIH wished to secure its control over HTI, purchase (b) Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the parties not a legal and valid contract as per the provisions of SCRA and cannot be treated as a valid contract of derivatives. Hence, the same cannot be treated as securities, as claimed by the appellant. 15. Ld Departmental Representative further impressed upon that though it is also a fact that Put/call options have become acceptable worldwide. Still, in India till2013, their legality was questionable when a notification under Sections 16 and 28 of the Securities Contracts (Regulation) Act, 1956, was published by SEBI on 03.10.2013 to include 'Options Contracts' within its sphere. SEBI, on various occasions, had clarified that call options and put options are illegal for two reasons: (1) these Contracts cannot be considered valid derivatives contracts as they can only be traded on stock exchanges and not through private contracts between parties and (2) these privately contracted options give the parties the right to put or call at a future date which makes it invalid "spot delivery contract" under SCRA SEBI treated it as a violation of notification no SO 184(E) dated 1st march,2000 issued by SEBI. SEBI vide Notification dated 03.10.2013 has rescinded the previous noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the definition of service and not findings a place in the negative list of services under section 66D of the Act are subjected to Service Tax. The service provided by the appellant is not covered by any of the services mentioned in the said negative list nor are exempted by way of any notification. Therefore, the appellant was liable to pay service tax on the "Call Option Fees" received by him. Impressing upon no infirmity in the findings in the order under challenge, the appeal is prayed to be dismissed. 20. As regards as to whether the activities covered by definition of support service of business or commerce, ld. Departmental Representative has submitted that the definition of the said service in Section 65 (104c) of Finance Act clarifies that the definition is inclusive one. (b) It is clear that the definition of support services of business or commerce above is a mean and inclusive definition. The definition will include the item specifically mentioned therein, but the meaning is not limited to them. A look at the definition of "support services of business or commerce" indicates that it means services provided concerning business or commerce. Therefore, if any service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecom Ventures ("MTV") owned 50% of the shareholding. 1998 MTV divested 41% stake in Vodafone India 2005 MTV divested the balance stake in Vodafone India January 2006 Appellant acquired 7.577% indirect stake in Vodafone India through Scorpio Beverages Private Limited, ND Callus Service Private Limited, and other group companies. The investment was financed through a rupee loan facility availed from Rabo Finance India Limited. The loan was secured by a) pledge of underlying indirect stake in favour of the lender; and b) standby letters of credit issued by Caylon Bank. May 2007 The impugned 'Framework Agreement' with Vodafone India offering call options in respect of the 7.577% indirect stake of the Appellant against call option fee to be paid to the Appellant was executed. May 2010 The Appellant increased its indirect stake to 7.67% as ND Callus Service Private Limited, a company of the Appellant, acquired shares held by Aseem Ghosh and his subsidiary cos. like AG Mercantile etc. May 2010 The impugned amendment to the 'Framework Agreement' was executed offering call options to Vodafone India in respect of the increased indirect stake of the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of section 2 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: (id) units or any other such instrument issued to the investors under any mutual fund scheme; (ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interest in securities;" 25. We also observe that the said definition of securities under the SCRA was made applicable for Service Tax also, by virtue of sub-section 65(93) of the Act. The said provision, as in force up to 31.06.2012, stated that: "securities" has the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); 26. From the above provisions it become clear that the "Call Option" is a derivative or a right in securities. Both of which are specifically included in the definition of "securities" in section 2 (h) & 2 (d)of the Securities Contracts (Regulation) Act, 1956 (SCRA). Securities are otherwise regarded as "goods" under normal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed clarifying that 'Call Option' is a transaction in securities. The department's plea that 'Framework Agreement' was an arrangement for holding shares in question was not a 'Call Option' but was that of retaining of option by VIH to keep control over the entire structure has also been rejected by Hon'ble Apex Court. In para 74 to 76 of the judgment in Vodafone case (supra) Hon'ble Supreme Court has construed the 'Framework Agreement' and held that the agreement did not confer any rights to Vodafone, and it was an agreement to confer call and put options to VISPL and/or the appellant and its Associate Companies. In the light of these observations of Hon'ble Supreme Court we hold that the Framework Agreement contemplated the transfer of SBP Shares upon exercise of the Call Option granted to GSPL, the requirement/ obligation on the Appellant to hold the underlying shares which were the subject of the Call Option was ancillary and necessary for the Call Option to be enforceable. Accordingly, the consideration could not be attributed, and was not paid, for such an ancillary requirement as it had no separable commercial value. Therefore, the consideration was not for the restriction c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Stamps (1899) A C 99 was relied upon. This Tribunal also in the case of Air Liquid North India Pvt. Ltd. vs. CCE, Jaipur reported as 2012 (27) STR 295 (Tri.-Delhi) while relying upon Godfray Philips (supra) case has held that the similar transaction as the case in question was not covered under the scope of 'Business Support Service'. The Departments appeal against the said order of the Tribunal has been dismissed by Hon'ble Rajasthan High Court in a case reported as 2018 (8)TMI 1291. 32. It stands established from the definition above that from the entire above discussion, it is clear that the activity of giving "call option" is not an activity of rendering service. It is rather a transaction dealing in goods. Department has relied upon the dictionary meaning of commerce to mean buying and selling of commodities and upon apex court decision in Gannon Drunkly & Company Madras Ltd. vs. State of Madras reported in 1954 (15) STC 216 wherein trade and commerce both denote an idea of sale and purchase with a view to make profit. But in the light of above discussion this plea itself is observed to falsify department's own stand of alleging consideration received in transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (44). 37. The impugned Show Cause Notice has been issued by invoking the extended period of limitation. However, from the order under challenge, we observe that there is no discussion regarding any specific act on part of appellant which may establish the intent to evade tax. There is no discussion regarding which of the situation listed in clause (a) to (e) of the proviso to section 73 (1) of Finance Act is attracted. 38. From the entire above discussion, it is clear that granting "call option" is not an activity of rendering service. The appellant was of this bonafide belief only, which is why the service tax on "call option fee" was not paid by the appellant. In view of these apparent facts on record and absence of any evidence about the positive act of the appellant to evade duty, we hold that the department has wrongly invoked the extended period of limitation. We draw our support from the decision of this Tribunal in the case of Grindwell Norton reported as 2018 (1) TMI 715 (Tri. Ahmd.) wherein it was held that when appellant did not pay service tax under the bonafide understanding of the law and the matter essentially relate to interpretation of statute, extended period s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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