ST - Appellant had no intention to avoid payment of service tax which would have been available to them as Cenvat credit and non-payment would not result in any financial benefit - Penalties waived: CESTAT
By TIOL News Service
MUMBAI, JAN 01, 2016: THE appellant availed external commercial borrowings (ECB) in the form of convertible foreign currency bonds in April 2005 and April 2006 and raised capital in overseas market in the form of Global Depository Receipts (GDR). To raise funds for their activities, the appellant availed merchant banking services from Citigroup Global Markets Ltd (Citigroup) and J.P. Morgan Securities Ltd based abroad and who do not have an office in India and acted as Lead Manager for the two issues of ECB and GDR. For the above services, the appellant paid certain fees to the lead managers.
It was the Revenue view that the service of merchant banking is leviable to service tax in terms of section 65(12) r/w section 65(105)(zm) of the Finance Act 1994 viz. "Banking and other financial services" and in view of the provisions of s.66A of FA, 1994 read with Taxation of Services (provided from outside India and received in India) Rules, 2006 the appellant is liable to pay service tax of Rs. 2,33,94,233/-.
The Commissioner of CE, Pune-III confirmed the demand and also imposed penalties under sections 76 and 77 as well as equivalent penalty under Section 78 of the Finance Act.
The appellant paid the entire amount of service tax, albeit under protest, before the issue of show cause notice. Interest under section 75 of the Finance Act and 25% of the penalty under protest were paid within 30 days of the date of the communication of the impugned order dt. 18.08.2011.
Before the CESTAT, in appeal, the appellant made a categorical statement that they are not disputing the leviability of service tax and informed that they do not wish to contest the matter as far as tax and interest are concerned. However they sought a lenient view and waiver of penalty u/s 80 of the Finance Act on two accounts - that the taxability in such cases was a matter of interpretation and they had a genuine belief that tax was not payable as the funds were raised abroad, the entities who had provided the service of raising of funds were located abroad, the service was consumed outside India as the funds were raised outside India through the issue of ECB and GDR; that, in any case, the service tax paid by them would be available as Cenvat credit which they have availed.
The Bench considered the submissions and observed -
"…We find that the appellant paid the service tax on 18.12.2007 whereas the show cause notice was issued on 11.08.2008 and adjudicated on 18.08.2011. The prompt payment of service tax even before the issue of show cause notice shows the genuineness of the appellant. It is a case of bonafide belief of the appellant that service tax was not payable. Even the interest was paid soon after the passing of the adjudication order. Most importantly, it is seen that whatever tax is paid by the appellant is available to them as Cenvat credit. In such a situation, being a big company, we are of the view that the appellant had no intention to avoid payment of service tax which would have been available to them as Cenvat credit and non-payment would not result in any financial benefit. Therefore, in our considered view, the case deserves waiver of penalty under section 80 of the Finance Act and we order so."
While upholding the impugned order to the extent of confirmation of service tax demand and the interest thereon, the appeal was partly allowed by way of waiver of the penalties imposed.
In passing: Also see Tata Steels Ltd. - 2015-TIOL-2464-CESTAT-MUM.
(See 2016-TIOL-12-CESTAT-MUM)
