Custom, Excise & Service Tax Tribunal
M/S Tata Steel Ltd vs Commissioner Of Service Tax, Mumbai-I on 17 December, 2014
IN THE CUSTOMS, EXCISE AND SERVECE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT NO. III APPEAL NO. ST/672/11 (Arising out of Order-in-Original No. 09/STC-1/SKS/11-12 dated 19.09.2011 passed by the Commissioner of Service Tax, Mumbai-I.) For approval and signature: Honble Shri Anil Choudhary, Member (Judicial) Honble Shri P.S. Pruthi, Member (Technical) =====================================================
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy : Seen
of the order?
4. Whether order is to be circulated to the Departmental : Yes
authorities?
M/s Tata Steel Ltd.
: Appellant
Versus
Commissioner of Service Tax, Mumbai-I
: Respondent
Appearance
Shri A.R. Krishnan, C.A.
Shri Girish Raman, C.A.
: For Appellant
Shri K.M. Mondal, Special Counsel
: For Respondent
CORAM:
HONBLE SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL)
HONBLE SHRI P.S. PRUTHI, MEMBER (TECHNICAL)
Date of Hearing : 17.12.2014
Date of Decision:
ORDER NO.......................................................
Per: P.S. Pruthi:
This appeal is directed against the Order No. 09/STC-1/SKS/11-12 dated 19.09.2011 passed by the Commissioner of Service Tax, Mumbai-I holding that service is provided by the appellant under the category of Banking and other Financial services, confirming Service Tax liability of Rs.8,05,24,006/-, confirming demand of Rs.9,76,01,442/- (including interest) already paid by them, imposing penalty of Rs.8,05,24,006/- under Section 78 of the Finance Act imposing penalty under Section 76 of the Finance Act, 1994 and appropriate interest under Section 75 ibid.
2. The facts are that M/s Tata Steel Ltd. (TSL), 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 [a borrower] 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.
3. A show-cause notice was issued to the appellant stating that they are paying various service charges to different foreign financial institutions/banks namely Arrangement fees (MLA fees) for arranging loan, agency fees, front end fees, syndication fees, out of pocket fees, structuring fees, upfront fees, issuing fee, underwriting fees, trustee fees, road show expenses, etc. Further, the MLAs and lending Banks, in consultation with appellant, appointed non-resident banks as agents in connection with financial documentation relating to the loans. The appellant pay agency fees to the Agents. As the said foreign financial institutions do not have any office or establishment in India, it was alleged that the Service Tax on the above service charges (arrangement fees and agent fees) paid by Tata Steel Ltd. becomes payable by Tata Steel Ltd., on reverse charge basis, being the recipient of services in terms of Section 66(A) of the Finance Act read with Taxation of Services [provided from outside India and received in India] Rules 2006 read with rule 2(1)(d)(iv) of the Service Tax Rules, 1994 under Banking and other Financial Services specified under Section 65 (105)(zm) read with Section 65 (12) of the Finance Act, 1994.
4. In his Order it is stated by the Commissioner that because, out of the total amount demanded, Rs.9,73,86,016/- was 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.8.05 crores is discussed. This amount of Service Tax of Rs.8.05 crores arises from payments made by Tata Steel Ltd. on two accounts namely, Arrangement fees (including road show expenses) and Agency fees paid to Mandated Lead Arrangers (MLA) and Agent Banks respectively.
4.1 While confirming the demand of Rs.8.05 crores, Commissioner observed that the Arrangers provided loan arrangement service as well as lending service and the loan arrangers are made party to the loan agreement. Out of 16 banks who lent the money, 10 banks are also loan arrangers (MLAs) who lent 90% of the total loan. The loan arrangers also paid for road show expenses which are incurred by them to procure finance for the appellant. These expenses are part of the loan Arrangement fees. Referring to the definition of Banking and Financial Services the Commissioner held that these services are provided in relation to lending and are covered under the definition of this taxable service. That is, the loan arrangement fee paid to the banks by the appellant is nothing but a service in relation to lending. The other part of the demand pertains to Agency fee which is charged by the banks appointed as Agent bank to facilitate the process of administrating the loan. The functions of the agents are; inter-alia -
i. Maintaining contact with the borrower and representing the view of the lenders.
ii. Monitor: Monitoring the compliance of borrower regarding repayment of loan and other conditions of loan.
Iii. Postman and Record-Keeper: it is the agent to whom the borrower is usually required to give notice.
iv. Paying Agent: The borrower makes all payments of interest and repayments of principal and any other payments required under the loan agreement to the Agent bank. The agent bank passes these monies to the banks to whom they are due. Similarly the banks advance funds to the borrower through the Agent.
4.2 The Commissioner held that the demand for the period prior to 18.04.2006 is also sustainable in view of CBEC Circular 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(1)(d)(iv) of the Service Tax Rules. On the issue of time bar, Commissioner held that the payment of said Arrangement fee and Agency fee was never declared to the department and therefore extended period of 5 years is applicable. He also imposed penalties under Sections 76 & 78 of the Finance Act, 1994.
5. Heard both Sides.
6. The learned C.A. Mr. A.R. Krishnan Counsel for the appellant shows us the Arrangement by which the appellant were facilitated in obtaining finance from the international market. He referred to the Commitment letter dated august 4, 2006 addressed to the appellant by a syndicate of banks namely ABN AMRO Bank, City Bank and Standard Chartered Bank, all committing to act as Mandated Lead Arrangers to arrange the facility of US $ 750 Million Syndicated loan facility. The commitment letter has the following salient features :-
............... Syndication: ......... The Mandated Lead Arranger will manage all aspects of the syndication in consultation with you, including the timing of all offers to potential Lenders, the acceptance of commitments, and the determination of the amounts offered and the compensation provided..............
Commitment Termination: The Underwriters commitments and agreement of the Mandated Lead Arranger set forth in the Documents will automatically terminate on the earlier of the date of signing of Facility Documentation and 90 days from the date of this letter.............
Fees, Costs and Expenses: The Borrower shall pay the Banks non-refundable fees and pay or reimburse the banks on demand for all costs and expenses as set forth in Annex-1. Payment of the foregoing fees, cost and expenses will not be subject to counterclaim or set-off for, or be otherwise affected by, any claim or dispute relating to any other matter.
You also agree to pay all costs and expenses of the Banks (including, without limitation, fees and disbursements of counsel) incurred in connection with the enforcement of any of its rights and remedies under any of the Document..................
Annexure (to Commitment letter) Lenders: A group of international and Indian banks to be selected by the Mandated Lead Arranger in consultation with the Borrower..........
Arrangement Fees: 1.2% of the facility amount payable upfront..............
Agency Fee: US $ 15,000 per annum. The fees will be paid annually in advance, initially within 5 days of the signing the Facility Agreement or upon the date of first drawdown, (whichever is earlier), and on each anniversary thereof.................... The learned Counsel also shows the Facility Agreement between Tata Steel, the MLAs comprising of 10 banks, the Agent Bank, and the Lending Banks. This agreement facilitates loan of US $750,000,000/- million for the borrower i.e. Tata Steels Ltd.
6.1 Referring to the above Agreements, the learned Counsel argued that:
(i) The Order-in-Original seeks to tax the Arrangement services as services in relation to lending on the premise that lending is covered under a specific clause under banking and other financial services viz., clause (ix)- lending. The MLAs services are to the borrower and not to the lender and hence it is in relation to borrowing not in relation to lending. Only the services qua service recipient are relevant. E.g. Stock Brokers service whereunder services in connection with both sale and purchase are liable. The Agreement clearly provides for payment of arrangement fees to the arrangers only and not to the lenders. The scope of work of the arranger was to arrange funds for the borrower. This is clear from the mandate letter of 4.8.2006. The subsequent act of arranger becoming a lender will not obliterate the fact that the arrangement fees is paid for arranging a loan for the borrower and not for lending. If Arrangement fees is considered as in relation to lending since it is paid to the lenders then it will have the character of interest and interest is excluded from value of taxable service hence not liable for service tax Rule 6 (2)(iv) of Valuation Rules.
(ii) The service is provided beyond the Indian territory hence not liable to tax. The MLAs are abroad, lenders are abroad, and monies are received abroad. He relied on Cox & Kings India Ltd. Vs. CST (DEL) 2013- TIOL - 1907- CESTAT - DEL. He also relied on Board Circular F. No. B1/4/2006-TRU dated 19.04.2006. According to him the service is not received in India and hence Section 66(A) is not applicable.
6.2 Mr. Krishnan further argued that the Arrangement fees was paid to overseas banks in the capacity of Arrangers and not as lenders. All the lenders are not arrangers. Hence the two activities viz., arrangement and lending are distinct. The very fact that 6 out of 16 lenders were not arrangers and have not received any arrangement fees itself indicates that arrangement of loan and lending i.e. giving of loan are two different activities and not the same. For example Citibank N.A. Baharain Branch [who lent 12.63% of the facility] was not an arranger but another associate company of Citigroup viz., M/s. Citigroup Global Market Singapore Pte. Limited [a company which is engaged in non-fund based activities] was the arranger.
He stated that
(a) The role of an arranger is to procure lenders / lender syndicate for the appellant (the borrower) and his role concluded upon signing the loan agreement.
(b) In cases where the arranger is a lender, the fee is paid to him is in his capacity as an arranger and not as a lender.
(c) All the lenders are not necessarily arrangers and all arrangers are not necessarily lenders. [Arrangers have also become lenders for about 77% of the facility.
Hence the two activities viz., arrangement and lending are distinct.
6.3 The learned C.A. also argued that for the Arrangement fee paid prior to 18.04.2006, the importer of service was not liable to Service Tax as this is the settled position in law. In this regard he referred to Board Circular No. 276/08/09-CX 8A dated 26.09.2011 which also rescinded Board Circular 275/7/2010-CX 8A referred to by the Commissioner in his Order. He summarised the demand confirmed, period wise and fee wise as below:-
Period-wise Demand Amount (Rs. crores) Arrangement fee prior to 18.4.2006 2.83 Arrangement fee Post 18.4.2006 5.20 Agent Banks fee (all post 18.4.2006) 0.02 Total tax demand 8.05 6.4 Learned Counsel relied on i. Kingfisher Airlines Pvt. Ltd. Vs. Commissioner of Service Tax, Mumbai - 2014-TIOL-2112 CESTAT-MUM ii. Intas Pharmaceuticals Ltd. Vs. Commissioner of Service Tax, Ahmedabad 2009 (16) STR 748 (Tri. Ahmd.) iii. KPIT Cummins Infosystems Ltd. Vs. Commissioner of Central Excise, Pune-I 2014 (33) STR 105 (Tri.- Mumbai) to justify that Service Tax is not payable when the services are received abroad.
7. The learned Special Counsel Shri K.M. Mondal, appearing on behalf of Revenue, reiterated the findings of the Commissioner. He drew our attention to the show-cause notice where it has been stated that since the foreign financial institutions, which made arrangement for loan, do not have any office or establishment in India, the Service Tax becomes leviable on service charges paid by the appellant to the foreign institution,. appellant being the recipient of service in terms of Taxation of Services (Provided from outside India and received in India) Rules, 2006 framed under Section 66A of the Finance Act, 1994 and read with Rule 2(1)(d)(iv) of Service Tax Rules, 1994.
7.1 He also drew our attention to the statement of Shri Pravin Sood, Head of Tax Administration and Planning, M/s Tata Steel stating that they did not pay Service Tax as they were under the impression that the Arrangement of loan and services provided under Commitment letter dated 4.8.2006 does not come under the provisions of Banking and other Financial Services. Shri Sood acknowledged the payment of expenses towards road shows conducted by the MLAs. The learned Special Counsel further stated that all other fees like agency fee etc are an integral part of the service provided by the foreign institutions.
7.2 Rebutting the argument of the learned C.A. for the appellant that the service is provided outside India, the learned Special Counsel drew our attention to charging Section 66A, to Rule 3 of the Taxation of Service (Provided from outside India and received in India) Rules, 2006, to the definition of person liable to pay Service Tax in the context of import of service, under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 and emphasized that all these provisions under the statute clearly state that Service Tax will be leviable on import of services when they are received by the recipient located in India. On an issue raised by the learned C.A. regarding non-mention in the show-cause notice of specific clause of the definition of Banking and other Financial Services in which the service in question falls, he stated that the relevant provisions i.e. 65(105)(zm), which provides for levy of Service Tax on service provided in relation to Banking and other Financial services as well as Section 65(12) which defines Banking and other Financial services are clearly mentioned in the show-cause notice. According to him, the failure of mentioning the relevant clause of definition of Banking and Financial Services is not important when the allegations are loud and clear. He relied on G.J. Glass Vs. Commissioner of Central Excise 1991 (51) ELT 521 (Tri), para 9 and on Borivali Hosiery Mills Vs. CC&CE 1991 (56) ELT 76 (T), para 12.
7.3 On the issue of limitation, his contention was that the appellant never declared the payment of Arrangement fees and Agency fees to the department. Further, the fact that they were aware of the leviability of Service Tax is indicated by the payment of Rs.9,76,01,442/- by them out of the total demand of Rs.17,79,10,086/-. He relied on Tribunals judgment in the case of Housing Development Corporation Ltd. Vs. Commissioner of Service Tax, Ahmedabad 2012 (26) STR 531.
8. We have carefully considered the rival contentions. The background in brief is that the appellant borrowed finance by way of syndicated loans for their international acquisition as well as international capital expansion, from Financial Institutions/Banks abroad. To facilitate their desire to locate lending institutions, they appointed Mandated Lead Arrangers (MLAs), which can be a single entity or a group of institutions. In their case, they obtained a Commitment letter from the syndicate comprising of ABN Amro Bank, Citibank and Standard Chartered Bank, who committed, vide their letter dated 4.8.2006 to the appellant to act as Mandated Lead Managers of the Facility. The Facility was to arrange US$ 750 million syndicate loan facility. The MLAs committed to manage all aspects of the syndication in consultation with the appellant including the timing of offers to potential lenders, acceptance of commitments and determination of the amounts offered and the compensation provided. In the commitment letter, the essential features of which are related in para 6 above, it is stated that the agreement with the MLAs will automatically terminate on the earlier of date of signing of facility Documentation and 90 days from date of the Commitment letter. The Commitment letter also requires the borrower i.e. appellant to pay fees and reimburse the Banks for all costs as set forth in Annexure-I of the Commitment letter. Annexure-I states, inter alia, that the lenders would be a group of International and Indian Banks to be selected by the Mandate Lead Managers in consultation with the appellant. The Annexure also provides for payment of fees by the appellant to the MLAs as under: -
Arrangement Fees: 1.2% of the facility amount payable upfront.
Agency Fee: USD 15000 per annum. The fees will be paid annually in advance, initially within 5 days of the signing the Facility Agreement or upon the date of first drawdown, (whichever is earlier), and on each anniversary thereof. 8.1 Pursuant to the Commitment letter, the Facility Agreement for M/s Tata Steel Ltd. was signed by
(i) The Borrower M/s Tata Steel Ltd.
(ii) The Arrangers, namely - ABN Amro Bank, The Bank of Tokyo, Calyon, Citigroup Global Markets, Export Development Canada, First Commercial Bank, Malayan Banking Berhad, Mizuho Corporate Bank Ltd., Standard Chartered Bank, Sumitomo Mitsui Banking Corporation;
(iii) The Original Lenders, namely ABN Amro Bank, Banca Monte De Paschi Di Siena S.P.A., Banca Intesa S.P.A., The Bank of Tokyo, Calyon, Citibank N.A., DZ Bank AG Deutsche Zentral, Export Development Canada, First Commercial Bank, Malayan Banking Berhad, Mizuho Corporate Bank Ltd., National Bank of Dubai, Societe Generale, Hong Kong, Standard Chartered Bank, Sumitomo Mitsui Banking Corporation, Taiwan Cooperative Bank, Manila.
The Facility Agreement is an exhaustive Agreement running into 100 pages and provides the terms of lending, repayment, cost of utilization, etc. Section 9 clause (24) spells out the role of the Agent and the Arrangers. At Section 9 clause (24.3) the role of Arranger was stated as - except as specifically provided in the Finance Documents, the Arranger has no obligations of any kind to any other Party under or in connection with any Finance Document. Clause 24.4 states No fiduciary duties (a) nothing in this agreement constitutes the Agent or the Arranger as a trustee or fiduciary of any other person, (b) neither the Agent nor the Arranger shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account. Section 5 clause (11) provided for the Arrangement fee to be paid by the Borrower to each Arranger party and Agency fee to be paid by the borrower to the Agent.
8.2 From the Commitment letter and Facility Agreement, it is clear to us that there are two services involved one is the service provided by the MLAs, who charged the Arrangement fee and the second was the actual lending services provided by the institutions who actually lent the money. There is no confusion that the Arrangers and the lenders are different entities. Simply because some Arrangers are also lenders, does not detract from the fact that the activity of arranging finance is a distinct activity, separate from the activity of lending. It is clear that the role of the Arranger is only to arrange for financial institutions or a group of institutions, who can provide finance to the appellant. The Arrangement fee is truly a fee paid to the Arranger in his capacity as Arranger notwithstanding the fact that the Arranger may ultimately also become the lender. The issue whether the two activities are distinctly separate needs to be addressed first because the Commissioner in his order appears to have confused the matter while stating that the loan arranger and lenders are same and, therefore, this is a straight forward case to treat the loan arrangement fee for the services, which has direct nexus with the lending... In any case we note that the learned C.A. has himself stated that the two activities of arrangement and lending are distinct. Accordingly, we hold that the activity of Arrangement by the MLAs who charged the Arrangement fees is a service distinct from actual lending and it is the service of Arranging by MLAs, which needs our attention.
9. The next issue to be resolved is whether the activity of MLAs in arranging finance is an activity that can be termed as a service rendered by a Banking company/financial institution in relation to Banking and other Financial Services classified under Section 65(105)(zm) of the Finance Act, 1994. The service is defined as below: -
(zm) to any person, by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, in relation to banking and other financial services; Further, the definition of Banking and other Financial Services is defined under Section 65(12) as under: -
banking and other financial services means
(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely :
(i) .
(ii) to (viii) .
(ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts. 9.1 The learned C.As contention is that only the activity of lending is covered under this service as it does not refer to the term borrowing under clause (ix) above and in the present case, the service provided to the appellant is not of lending but of borrowing. To elucidate his contention, the learned C.A. gave the example of a Stock broker service, which defines the service in connection with sale and purchase and covers both sale and purchase. According to him, the word lending does not automatically mean borrowing also. He also argued that if the Arrangement is considered as in relation to lending then it will take the character of interest which is excluded from the value of taxable service under Rule 6(2)(iv) of Valuation Rules. The learned Special Counsel, on the other hand, contended that the activity of lending is involved in the present situation.
9.2 We note that the definition at clause (ix) uses the word lending. This leads to the question whether service provided by the MLAs to the borrower (appellant) is not that of lending. We find that the service under Section 65(105)(zm) is a service provided to any person in relation to Banking and other Financial services. In the present case, it is clear that the service rendered by the MLAs to the appellant is of arranging loan from the financial institutions for the appellant. In other words, it is a service of arranging lending or arranging lenders for the appellant and is clearly covered under the provisions of law stated above. Therefore, we reject the contention of the learned C.A. The other contention that if the service is considered as in relation to lending, it will partake the character of interest which is excludable from taxable value, is also not acceptable. We have seen that the service provided by MLAs is the service of arranging on which tax has been demanded. It is different and distinct from the service of actual lending which involves interest. Therefore, the argument of the learned C.A. does not appeal to us and we do not accept it.
10. We may now come to the next argument of the learned C.A. According to him, all the activities, i.e. all the services are provided beyond the Indian Territory - the lenders are abroad, the MLAs are abroad and the money is received abroad. We note, as shown by way of documents by the learned C.A., that the money i.e. the finance received from the lenders is deposited in the Banks of the appellant abroad. The question arises, whether because of this fact alone the service should be considered as provided beyond the Indian Territory. We are not impressed by the learned C.As contention. In fact, the learned Special Counsel has rightly taken support of statutory provisions to counter the argument of the learned C.A. We may examine the statutory provisions.
(a) First, Section 66A, the charging Section, which passes liability to service receiver on services received from outside India, clearly provides under clause (b) that the services should be such as received by a person (hereinafter referred to as a recipient), who has his place of business in India. There is no doubt that the appellant have their place of business in India.
(b) Secondly, whether the service is received in India from abroad is determined by the Taxation of Services (Provided from Outside India and received in India) Rules, 2006. The Rule 3 states that Subject to Section 66A of the Act, the taxable service provided from outside India and received in India shall, in relation to taxable services... In our view, the services are received in India, which we will clarify below: -
Rule 3 further goes on to state in para (iii), as under: -
(i) and (ii) .
(iii) specified in clause (105) of Section 65 of the Act, but excluding, -
(a) sub-clauses (zzzo) and (zzzv);
(b) those specified to clause (i) of this rule except when the provision of taxable services specified in clauses (d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable roperty, and
(c) those specified in clause (ii) of this rule, Be such services as are received by a recipient located in India for use in relation to business or commerce. The service in question i.e. Banking or other Financial Services falls under Section 65(105)(zm) which is covered by Rule 3(iii) above. Therefore clearly, the service of Banking is considered to be received in India when the recipient is located in India which is an unquestioned fact in the present case.
(c) Thirdly, in relation to import of services, Rule 2(i)(d)(iv) of Service Tax Rules, 1994, defines a person liable to pay Service Tax as: -
(iv) in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under Section 66A of the Act, the recipient of such service. 10.1 The learned C.A. contended that since the money has been lent abroad and the MLAs are abroad, therefore, the Service Tax is not payable. On a close reading of the above provisions of law, it becomes clear that what is important is whether the recipient of service is located in India. We have no hesitation in stating that the service recipient is located in India. The Commitment letter and the Facility Agreement are addressed to M/s Tata Steel Ltd., whose business office is in India and they have signed the Facility Agreement as Tata Steel India. One should not be confused by the activity of actual lending of finance. We have shown that that the activity of MLAs as Arrangers and the activity of lenders of finance are distinct activities. When the learned C.A. states that the activity is taking place abroad, he is forgetting that it is actually the activity of lending of money by the lenders into the Bank of the appellant, which is taking place abroad. The MLAs have clearly provided the services to the appellant M/s Tata Steel in India and informed them of the terms and conditions of their Commitment including the fees/expenses that will be charged by them. Therefore, this activity of MLAs is clearly a taxable service provided from outside India and received in India. It is significant to note that the MLAs fees are paid by the appellant from India and the interest on the finance given by lenders is also paid from India. We hold that the service provided by the MLAs to the appellant is a service provided from outside India and received in India.
11. Reliance is placed by the appellant on Boards Circular dated 19.4.2006 (supra). This Circular only states, in para 4.2.3, that .it may be noted that only service received in India are taxable under this provisions... This Circular does not help the appellant as we have already held that service in question is received in India.
11.1 The reliance on the case of Cox and Kings India Ltd. (supra) also does not come to the support of the appellant. In the case of Cox and Kings, the issue was about the service provided by tour operators on outbound tours. It was held by the Tribunal in paras 18(j) and (k) that: -
(j) In respect of the services provided by the assessees for booking of passage for travel by air from India, they were assessed to and service tax levied and collected under the taxable category of "air travel agent". It is only in respect of services provided for outbound tours; at foreign locations and on the consideration received therefor, that the present proceedings relate to. On the authority of the precedents i.e. Ahmedbhai Umarbhai & Co and Ishikawajma-Harima Heavy Indus. Ltd., it is clear that even composite transactions involving a raft of apparently taxable services are susceptible and ought to be, vivisected, to ascertain which of the services or components thereof fall within the ambit of the Act and which services fall outside such ambit. As services provided for outbound tours are provided and consumed outside the Indian territory; are beyond the province and purview of the provisions of the Act, the consideration received which corresponds and is reiatable to services provided outside the Indian territory require to be excised by applying the doctrine of apportionment. On such vivisection, the consideration attributable to services provided outside the Indian territory must be excluded, as this is not subject to levy and collection of service tax, under provisions of the Act. This conclusion is also the logical corollary of the non-derogable premise that service tax is not a tax on the pursuit of the profession of providing a taxable service but is a tax on the provision of a taxable service, a destination based consumption tax.
(k) The fundamental fallacy in the substantive premise of the adjudicating authority, in our considered view, is applying the provisions of the Act (which authorises the levy and collection of service tax as a destination and consumption based tax and in respect of a service defined and enumerated in the Act to be a taxable service), to a service provided and consumed beyond Indian territory, within which alone the legislation operates and authorises the levy and collection of tax. As pointed out in Ahmedbhai Umarbhai and Company, the very territorial limits to the operational efficacy of the Act, sanctions and obligates apportionment of the consideration received on "tour operator" service; and the consideration attributable to aspects of this taxable service which are provided and consumed outside the Indian territory must be excised from the gross consideration received, even where the service is provided and consumed partly within India and partly without. The facts in Cox and Kinds were entirely different. The main service provided was outbound tour which took place outside India. In the present case, the only service is of Arrangement of finance by MLAs and not of actual lending and the service is clearly provided to the appellant i.e. M/s Tata Steel in India. The service of Lending abroad is not the issue at hand.
11.2 The next case relied upon by the appellant is of Rajesh Exports Ltd. (supra). The learned C.A. referred to para 11 of the judgment, which is extracted below: -
11.?Assuming that Silverdales services are covered by the definition of BOFS, we have to consider the basic question which was in the focus of the rival submissions made by the learned counsel and the learned Deputy Commissioner (AR). This is the question whether the services provided by Silverdale were received by REL in India. It has been argued on behalf of the assessee, on the strength of a circular of the C.B.E. & C. as well as certain decisions of the Honble Supreme Court, that there can be no levy of service tax on REL under Section 66A of the Act unless the service provided by Silverdale abroad is shown to have been received in India by REL. It has been argued that those services were totally performed abroad and not received in India and therefore the assessee is not liable to pay service tax on those services. Section 66A of the Act does not explicitly require receipt of service in India; it rather refers to receipt of service by a person who has his place of business, fixed establishment, permanent address or usual place of residence in India. To our mind, there is a discernible difference between this underlined clause and receipt of service in India by a person who has . We have, of course, also noted that Rule 3 of the Taxation of Services (Provided from Outside India) Rules, 2006 is captioned in such a way that (for purposes of Section 66A) taxable services provided from outside India should be received in India. However, it is pertinent to note that Rule 3, in its body, refers to such services as are received by a recipient located in India for use in relation to business or commerce. The phrase received by a recipient located in India found in the text of Rule 3 matches the phrase received by a person who has his place of business, fixed establishment, permanent address or usual place of residence in India, found in the text of Section 66A of the Act. It is, indeed, a debatable question as to whether any requirement of receipt of taxable service in India should be read into Section 66A and Rule 3 or whether, for a demand of service tax in the reverse charge mechanism, receipt of taxable service, whether in or outside India, by a person resident or located in India is enough. The question can be rephrased - whether, under Section 66A, a recipient, located in India, of a taxable service provided by a person located outside the country can be deemed to have provided the service in India. This fundamental issue was not framed or examined by the adjudicating authority in this case. In our view, the issue requires to be addressed in de novo proceedings. From the above, it is clear that the Tribunal held that the factual issue was not framed or examined by the adjudicating authority. In the present case of the appellant, the matter is very clear and beyond doubt that the service is provided in India to a recipient in India. Therefore, the reliance on this case is also not correct.
11.3 We cannot appreciate the reliance place on the case of Kingfisher (supra), Intas Pharmaceuticals (supra) and KPIT Cummins (supra). In the case of Kingfisher, the facts were that service tax was demanded from Kingfisher on the guarantee money paid by BNP Paribas abroad to COFACE France who were also abroad. In the case of Intas, service tax was demanded on the service of Technical Testing and Analysis carried out abroad on behalf of Intas. In the case of KPIT Cummins, software development and consultancy service was provided by branches of KPIT abroad to overseas customers.
The common stream of facts in all the three cases is that services were rendered/provided abroad and therefore not leviable to service tax in India. Whereas in the present case of Tata Steel, the services have been received in India under Rule 3 of the Taxation of Services (Provided from Outside India and received in India) Rules read with Rule 2 of Service Tax Rules, which defines person liable to pay tax on services received from outside India, further read with Section 66A of the Finance Act, 1994. Therefore, the three judgments cited by the learned C.A. have no bearing whatsoever on the facts of the present case.
12. We note that the total amount of demand relates to the period 1.10.2005 to 31.3.2007. Part of the period is prior to 18.4.2006, when the Section 66A was introduced. Section 66A specifies that the charge of Service Tax on services received from outside India shifts to the receiver of services in India. It is now a settled matter that Service Tax on import of service on reverse charge mechanism (on receiver) is not leviable prior to this date. Both sides agreed that only demand for the period on or post 18.4.2006 sustains. We have already held that the Arrangement fee is leviable to Service Tax, being the fee provided by the appellant to MLAs for receiving the MLAs Arrangement service in India. The fees paid for road shows etc is included in the demand raised on account of Arrangement fees. Relatively smaller issue remains, that of Agency fees paid by the appellant to the agents abroad, who are appointed for administering the loan and their functions are laid down in the Agreement. The findings above in respect of Arrangement fees would hold in respect of Agent fees. Therefore, service tax is held to be payable on Arrangement fees and Agent fees for the period on or after 18.4.2006.
13. The contention of learned C.A. that show-cause notice does not categorically specify clause (ix) of Section 65(12) does not vitiate the proceedings. We find that the show-cause notice does mention Section 65(12) which defines Banking and other Financial Services. The show-cause categorically refers to the classification of service under Section 65(105)(zm); that is the service under which service tax is leviable. Therefore, the appellants were clearly put to notice on the services received by them and the leviability to tax with reference to legal provisions under Service Tax law. Reliance is placed on the case of J.G. Glass Ltd. (supra) wherein the Tribunal held that .. Failure to mention Section 11A in the show-cause notice does not, in any way, invalidate the show-cause notice. Therefore, we are of the view that the show-cause notice is valid in the eyes of law.. Reliance is also placed on the Hon'ble Apex Courts judgment in the case of J.K. Steel Ltd. Vs. UOI 1969 (2) SCR 418 which held that if the exercise of power can be traced to a legitimate source, the fact that the same was purported to have been exercised under a different power does not vitiate the exercise of power in question. Therefore, the proceedings initiated under the show-cause notice are valid in law.
14. On the issue of limitation, the learned C.A. argued that nothing was concealed from the department from the time the correspondence began for seeking details of overseas payments. It is true that the department, on the basis of some information, started investigating the case and entered into correspondence with the appellant. This does not mean that the extended period of time cannot be invoked. The correspondence stated in July, 2007 and the show-cause notice was issued in March, 2009 demanding duty for the period 1.10.2005 to 31.3.2007. It is quite natural that the department will take some time to assess the case after examining all documents and recording the statements of the appellants officials. The fact remains that the appellant never disclosed the activity of receiving services from MLAs abroad.
14.1 The learned Special Counsel correctly placed reliance on the case of Housing Development Corporation Ltd. (supra), in which it was held that the fact remains that after the definition of lending was amended and Service Tax definition included the activity in relation to lending for levy of Service Tax, the appellant should have intimated the fact to the department and checked up whether such collection of amount in relation to lending would be liable to tax or not. Further, it was held in the case of Spie Capag S.A. Vs. Commissioner of Central Excise, Mumbai 2009 (243) ELT 50 (Tri-Mum), the least that was expected of the appellant to discharge the plea of bona fide belief was to make enquiries from the Central Excise authorities or some reputed legal firm regarding dutiability of the item manufactured by it. We note that the appellant is not new to Indirect Tax law. They are a very large company with adequate resources at their command for taking advice. The least they should have done was to make enquiries from the department, which they did not do. They also made some payment of Service Tax on services towards Letter of Credit/Lead Manager fees for issue of securities. The acquisition of knowledge by the Department during the process of investigations does not obliterate the suppression of fact on the part of the appellant as held by the Hon'ble Gujarat High Court in the case of CCE, Surat-I Vs. Neminath Fabrics Pvt. Ltd. 2010 (256) ELT 369 (Guj.). Therefore, we hold that the extended period of 5 years is applicable in the present case for demanding duty under Section 73 of the Finance Act, 1994.
15. As regards penalties, we note that the claim for bona fide belief is not acceptable as held by us above. Therefore, the benefit of Section 80 of the Finance Act, 1994 has no application to the facts of the present case. The Commissioner has rightly imposed equal amount of penalty on the appellant under Section 78 of the said Act. In addition to this, the Commissioner has also imposed penalty on the appellant under Section 76 of the said Act for failure to make payment of service tax in time. Both the penalties are sustainable in view of the judgment of the Hon'ble High Court of Kerala in the case of Assistant Commissioner of C.Ex Vs. Krishna Poduval 2006 (1) STR 185 (Ker). Accordingly, we also hold that penalties under Sections 76 and 78 ordered by the Commissioner as well as interest under Section 75 of the Act are sustainable.
16. Out of the demand of Rs.8.05 crores confirmed by the Commissioner, it was agreed by both sides that the demand of Rs2,82,88,914/- relates to the period prior to 18.4.2006, which we have held to be not sustainable. Therefore, we order the appellants to pay Rs.5,22,35,092/- as Service Tax under the category of Banking and other Financial Service. The penalty ordered by the Commissioner under Section76 is upheld on the amount of Service Tax payable from 18.4.2006 till the actual payment of the outstanding amount of Service Tax. Appropriate interest as applicable under Section 75 of the Act is also payable. We uphold the confirmation of penalty of Rs.5,22,35,092/- under Section 78 of the Finance Act, 1994.
17. The appeal is disposed of in the above terms.
(Pronounced in Court on ..)
(Anil Choudhary) (P.S. Pruthi)
Member (Judicial) Member (Technical)
Sinha/Sp
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