ST - Appellant borrowing, by way of 'syndicated loans' for acquisition and capital expansion, from various overseas banks - whether Service Tax is payable under reverse charge on Agent Bank fees paid by appellant-borrower to nominated Agent Bank of lenders - Supplementary questions framed & referred : CESTAT
By TIOL News Service
MUMBAI, SEPT 26, 2015: THE appellant, borrowed, by way of 'syndicated loans', for their international acquisition and capital expansion, from various overseas banks. In order to find lenders / lender syndicate, the appellant appointed various banks/institutions abroad as Mandated Lead Arrangers (MLAs). The MLAs were paid "arrangement fees" which is essentially a fee paid for arranging lenders/lender syndicate for the appellant borrower.
A SCN was issued demanding ST on reverse charge basis under the head 'Banking and Financial Services'.
In his Order the adjudicating authority mentioned that, because, out of the total amount demanded, Rs.9.74croreswas paid during investigation within due dates or with a short delay of six days and 29 days and for the delay, the appellants paid the interest, no further action including penalties was necessary in respect of this amount of tax already paid. Therefore, in the Order only the balance demand of Rs.8.05crores is discussed. This amount of Service Tax of Rs.8.05crores arises from payments made by appellant on two accounts namely, Arrangement fees (including road show expenses) and Agency fees paid to Mandated Lead Arrangers (MLA) and Agent Banks respectively. Apart from upholding the extended period & confirming the demand, the adjudicating authority also imposed penalties u/s 76 & 78 of FA, 1994. The Commissioner also held that the demand for the period prior to 18.04.2006 is also sustainable in view of CBEC Letter No. 275/7/2010 CX-8A dated 30.06.2010 and Notification No. 36/04-ST dated 31.12.2004 issued under Section 68 (2) read with Rule 2(10(d)(iv) of the Service Tax Rules.
The matter was heard by the Division Bench and the following difference of opinion was referred to the 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 and circumstances of the case, the extended period of limitation is invocable and penalties under Section 76 & 78 are payable as held by the learned Member (Technical)
Or
Whether the extended period of limitation is not invocable in the facts and circumstances of the case as held by the learned Member (Judicial).
We reported this order as 2015-TIOL-1202-CESTAT-MUM.
It seems that the Applicant/Appellant is not pleased with the questions framed for reference and, therefore, have filed a modification application seeking rectification of mistake in this order.
It is submitted that the Judicial-Member has not given findings on the following three issues, which were also before the Tribunal, although Member (Technical) has given his opinion. The issues are as follows:-
(i) Whether the arrangement services were provided beyond the Indian territory and hence on that count also the arrangement services would not be liable for Service Tax.
(ii) Whether the tax demand of Rs. 2,82,88,914/- for period prior to 18.4.2006 on arrangement fees would not be payable.
(iii) Whether the benefit of Section 80 is not available and hence penalty under Section 76 and 78 are imposable or whether the benefit of Section 80 is available and accordingly the penalties under Section 76 and 78 are not imposable.
The applicant relies on the ruling of the Gujarat High Court in Colourtex vs. Union of India - 2006-TIOL-128-HC-AHM-CESTAT and the decision in Suzlon Infrastructure Ltd. - 2009-TIOL-327-HC-MUM-ST in support of their ROM application.
The Special Counsel for the Revenue opposed this application by citing the decision in Commissioner of Central Excise, Calcutta Vs. ASCU Ltd. - 2002-TIOL-408-SC-CX.
The Member (J) writing for the Bench and who incidentally was the second Member of the Division Bench that referred the matter to the third Member held that the rectification application is maintainable and, accordingly, allowed the same.
Accordingly, the following Supplementary findings were recorded by Judicial Member -
Findings:- It is held that the contract for services was entered into outside India, the services have been received outside India and further the resultant loan was also received outside India and its utilization also made outside India. As such, it is held that the Arrangement services were provided beyond the Indian Territory and hence, the arrangement services would not be liable to Service Tax under the Finance Act, 1994.
Findings:- On this issue, I agree with my brother learned Technical Member that the said amount relating to the period prior to 18.4.2006 on Arrangement Fee, would not be taxable under the Finance Act, 1994.
Findings:- In view of my findings recorded in para 22 of the order in appeal wherein I have recorded categorical finding that the transaction on which Service Tax is disputed have been admittedly recorded in the Books of Account maintained in the normal course of business. Further, Revenue had sought details of the overseas payment made towards external borrowing for the three years period i.e. 10.9.2004 on 13.6.2006 vide letter dated 12.7.2007, which was replied by the applicant assessee giving the details including the Arrangement Fees and Agency Fee in question. The revenue have thereafter taken a period of little more than 19 months in making up its mind as to the taxability of the Service Tax on two payments which is the subject matter of the present appeal. Thus, there is no suppression of facts and/or contumacious conduct on part of the applicant-appellant company. Further, the issue is interpretational in nature. Thus, I hold that the benefit of Section 80 is available to the appellant assessee. Accordingly, no penalty is leviable under any of the Sections including Section 76 and 78.
Resultantly, the following supplementary questions were referred to the third Member -
(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 as held by Member (Technical).
(ii) Whether in the facts and circumstances and in law, the benefit of section 80 is available to the appellant-assessee and no penalties are imposable as held by Member (Judicial)
or
Such benefit is not available and penalties are imposable under Section 76 and 78 of the Finance Act, 1994 as held by Member (Technical)
(See 2015-TIOL-2036-CESTAT-MUM)
