Custom, Excise & Service Tax Tribunal
M/S Coastal Gujarat Power Ltd vs Commissioner Of Service Tax, Mumbai on 24 December, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. III Appeal No. ST/655/11 (Arising out of Order-in-Appeal No. 05 to 07/STC-I/SKS/11-12 dated 25.8.2011 passed by the Commissioner of Service Tax, Mumbai). 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 Coastal Gujarat Power Ltd. Appellant Vs. Commissioner of Service Tax, Mumbai Respondent Appearance: Shri Sujit Ghosh, Advocate with Shri Mihir Deshmukh, Advocate for Appellant Shri V.K. Singh, Spl. Consultant for Respondent CORAM: SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) SHRI P.S. PRUTHI, MEMBER (TECHNICAL) Date of Hearing: 24.12.2014 Date of Decision: .2015 ORDER NO. Per: Anil Choudhary
The appellant, M/s Coastal Gujarat Power Ltd., is registered with Service Tax Department. The appellant is a Special Purpose Vehicle (SPV) set up by Tata Power Company for setting up a 4000 MW Ultra Mega Power Project (UMPP). The appellant has borrowed funds under the permissible scheme of External Commercial Borrowings (ECB) from various foreign lenders including the Internal Finance Corporation (IFC) and the Asian Development Bank (ADB) for meetings its fund requirement for setting up of the UMPP at Mundra (Gujarat). In respect of loan taken (ECB) from ADB and IFC, apart from the payment of interest, the appellant have also paid the following charges as per the terms of the agreement: -
(i) Commitment charges,
(ii) Upfront fee,
(iii) Arrangement fee,
(iv) Agency fee, and
(v) Reimbursement of out of pocket expenses incurred by the lenders.
The Revenue felt that the aforementioned charges are liable to Service Tax under the classification Banking and other Financial Services and as IFC and ADB did not have any office in India, the appellant/recipient of the service is liable to pay Service Tax under reverse charge as per the provisions of Section 66A of the Finance Act, 1994 read with Taxation of Service (provided from outside India and received in India) Rules, 2006. As the appellant had not paid Service Tax on the aforementioned charges, therefore, enquires were initiated and statement of one Mr. Sanjiv Gupta, Associate of Finance, was recorded in which he has stated that the appellant is paying Service Tax on other services including Goods Transport Agency. So far the liability of Service Tax on the aforementioned charges on ECB is concerned, the appellant denied its liability of Service Tax. Accordingly, the Revenue issued three show-cause notices, one by the DGCEI demanding service tax of Rs.4,62,33,800/- and two periodical show-cause notices by the Commissioner of Service Tax, Mumbai demanding Service Tax of Rs.1,68,37,586/- and Rs.1,92,18,542/- demanding Service Tax under Section 73 and interest under Section 75 of the Finance Act, 1994. The show-cause notices also proposed penalty under Sections 76, 77 and 78 of the Finance Act, 1994. The period covered under these show-cause notices were April, 2008 to March, 2011. The show-cause notices were adjudicated by the Commissioner of Service Tax, Mumabi-I. In the Order-in-Original the Commissioner had confirmed the demand of Service Tax along with interest, he has also imposed penalty under Section 78 f the Finance Act, 1994 in case of first show-cause notice and penalty under Section 76 and 77 of the Act in respect of remaining show-cause notices.
2. Being aggrieved, the appellant have preferred appeal before this Tribunal on the ground among others as follows: -
(i) That Service tax is exempted on operations & transactions undertaken by ADB and the IFC. Section 9 of the IFC Act, 1958 provides that the Corporation, its assets, property and its operations and transactions authorized by this Agreement shall be immune from all taxation and from all customs duties. The Corporation shall also be immune from liability for the collection or payment of any tax or duty. Further, the phrase all taxation is wide enough to cover service tax. Identical provision (i.e. Article 56) exists under the ADB Act.
(ii) That immunity from taxation qua operations & transactions undertaken by ADB and IFC would confer such immunity to not only the provider of the service but also the receiver of the service, on the reasoning that the exemption is not restricted only to the Corporation, its assets, property and income. It has been specifically extended also to its operations and transactions, as can be discerned from the language of Section 9 of the IFC Act & Article 56 of the ADB Act. Further, the grant of immunity from taxation to operation and transaction would essentially mean, that the immunity is not entity specific but to the transaction /operations carried out by these two agencies. Further, the term transaction has been defined in Blacks Law Dictionary (Eighth Edition) to mean any activity involving two or more persons. Thus, it is evident that the immunity is contemplated to be provided to both the persons engaged in a given transaction. Thus regardless of whether as per the general law tax is leviable on the provider of the service or the receiver of the service, the entire transaction being immune from taxation, neither the provider nor the receiver would be liable to pay the tax.
(iii) It is further urged that the provisions of the ADB Act as well as the IFC Act overrides the provisions of the Finance Act for the reason that Section 3(1) of the IFC Act, as also Section 5 (1) of the ADB Act, clearly provides that notwithstanding anything to the contrary contained in any other law, the provisions of the Agreement set out in the Schedule shall have the force of law in India. The above non obstante clause of the ADB Act as also the IFC Act would thus override the Finance Act, in case of conflict between the provisions of the Finance Act and ADB/IFC Act. The reliance is placed on ruling of the Honble Supreme Court in the case of Chandavarkar Sita Ratna Rao v Ashalata S Guram - AIR 1987 SC 117, where it has been held that It is equivalent to saying that in spite of the provisions of the Act or any other Act mentioned in the non-obstante clause or any contract or document mentioned in the enactment following , it will have its full operations or that the provisions embraced in the non obstante clause would not be an impediment for the operation of the enactment. (Reference to this decision can be had at Page 267 at Paragraph 69, Page 287 of the Appeal Memorandum).
Accordingly, even though service tax exemption has not been specifically provided under the Finance Act vis a vis to transactions undertaken by ADB & IFC, that position, being contrary to the specific tax exemption accorded under the ADB Act and the IFC Act, would thus stand overridden by the ADB Act and the IFC Act.
(iv) It is further urged that the powers of the Parliament to levy Service Tax admittedly arise Entry 97 & 92 C of List 1, Seventh Schedule of the Constitution of India read with Article 246. However, the powers of the Parliament under Article 253 are wide and the non-obstante clause at the beginning of the article, leaves no room for any doubt that such power, any legislation enacted under Article 253 would and can override any legislation enacted in exercise of power under Article 246. Basis this inherent power, Agreement Establishing the Asian Development Bank which was signed by the Government of India in Manila, Philippines, 2-4 December 1965 (the Agreement) and the International Finance Corporation Articles of Agreement, 1958, which was signed by the Government of India in Washington DC, the Parliament had legislated the ADB Act and the IFC Act for implementing the said agreements. Consequently, the Finance Act, 1994 which has been enacted by the Parliament by virtue of power bestowed under Article 246 has been overridden by Section 3 and Section 5 of the IFC and ADB Act by the Parliament while exercising its power under Article 252.
Accordingly, notwithstanding the fact that the Finance Act, 1994 does not provide any exemption from service tax qua transactions undertaken by ADB and IFC, exemption from the said tax can still be available within the tenets of the ADB Act and the IFC Act in view of the express language provided in Section 3 (1) read with Section 9 of the IFC Act and Section 5(1) read with Article 56 of the ADB Act. Reliance was placed on decision of the Honble Supreme Court in the case of Maganbhai Ishwarbhai Patel etc v UOI, 1970 (3) SCC 400 on the aspect that powers conferred on the Parliament under Article 253 is an exception to powers under Article 246.
(v) Specific Legislations would override the Finance Act, which is a general legislation. The well known Latin Maxim, Generalia Specialibus non derogant, a general provision should yield to a specific provision. so far as the IFC Act is concerned, its preamble specifically provides that this legislation was enacted to provide immunity and privileges to IFC and matters connected thereto. Specifically, the preamble/long title to the IFC Act provides as follows:
An Act to implement the international agreement for the establishment and operation of the International Finance Corporation in so far as it relates to the status, immunities and privileges of that corporation and for matters connected therewith Thus, the IFC and the ADB being a specific legislation governing provision of tax immunity to ADB/IFC or its operations and transactions, the same would override the general provisions of levy of service tax provided under the Finance Act.
(vi) The appellant further urged that as per finding of the Commissioner in the Order-in-Original that Proviso (c) of Section 5(1) of the ADB Act and Proviso (c) of Section 3 of the IFC, specifically provide for non applicability of immunity for services rendered by ADB/IFC. This finding is erroneous in as much as the phrase duties or taxes which are in fact no more than charges for services rendered must be interpreted to mean duties or taxes which are in the nature of charges for services rendered. That is to say, exemption is not intended to be extended to those charges imposed by the Indian Government for services rendered by them (i.e. those having a quid proquo) i.e. those that are in the nature of Fee for public utility services and their likes. Consequently, there is no bar from the exemption where taxes are imposed by the Indian Government, for taxes do not have any quid proquo and are not in the nature of fees. The appellant has made reference to Section 7 of the United Nations (Privileges and Immunities) Act, 1947, given that the said legislation also uses a similar language, though it has left less room for any ambiguity:
The United Nation, its assets, income and other property shall be exemption from all direct taxes, it is understood, however, that the United Nation will not claim exemption from taxes, which are in fact no more than charges for public utility services In any case, given that the IFC Act was enacted in 1958 and the ADB Act in the year 1966, it was never possible at that stage to contemplate that the proviso in dispute was meant to deny service tax exemption (as held by the Learned Commissioner), given that neither in 1958 nor in 1966 there was any concept of levy of service tax, which tax came into force only in 1994 for the first time. This in itself shows abject fallacy in the interpretation in the impugned order. On the contrary both the legislation clearly provides for immunity from all taxes, which is wide enough to cover present taxes as also any tax that may be imposed in the future.
(vii) The appellant further submitted that power to grant exemption from service tax is provided under Section 93 of the Finance Act. As per the said provision, the delegatee of the Legislature (i.e. the Central Government) has been empowered to grant exemption from service tax, in public interest. Merely because such a delegatee (i.e. the Central Government) has not exercised any such power to grant exemption qua IFC and ADB, does not mean that the delegator (i.e. the Parliament) cannot in exercise of its inherent and plenary power grant immunity from taxation. To state that exemption from service tax can be accorded only under Section 93 of the Finance Act by the Central Government ( and not by the Parliament), is to put the delegatee i.e. the Central Government at a pedestal higher than that of the Parliament and to undermine the inherent and plenary power of the Parliament to legislate. Such a proposition is not only bizarre but also against the basic principles of delegated legislations, administrative law and constitutional law.
(viii) Further, finding of the Commissioner that in the present case service tax is being demanded from the Appellant because it has been declared as a deemed service provider (even though it is a service receiver) by virtue of provisions of Section 66A of the Finance Act. The finding of the Commissioner, if held valid would hit at the very grain of the ADB Act and the IFC Act and would run contrary to the scheme of these two legislations and thus must be repelled. If the grant of indirect tax exemption has been accorded to transactions undertaken by ADB/IFC, it essentially means, not only the incidence but also the impact of the tax is sought to be exempted. This is also fortified by the fact that the provisions also grant an exemption to ADB/IFC from collection of taxes. Accordingly, any attempt to impose tax on the receiver of the services by taking the crutches of Section 66A of the Finance Act would defeat the very purpose of the exemption and would be no more than a colorable device and thus not permissible. In any case, the Allahabad High Court in the case of Glyph International Ltd v UOI 2012 (25) STR 209 (All) at paragraph 34, relying on the TRU circular dated July 16, 2009 had clearly held that Section 66A is not the charging section and the charging section continues to be Section 66 even for imported services. Basis this principle, attempt made by the Revenue to justify the tax demand on grounds of unwarranted differentiation being sought to be created between 66A and 66 is not tenable and must be rejected.
(ix) The Appellant further states that contrary to the finding of the Commissioner, this notification does not even apply to services provided to ADB or the IFC, instead it applies to UN and certain International Organizations (as defined under Section 3 of the United Nations (Privileges and Immunities) Act 1947, none of which includes the ADB or the IFC).
(x) Appellant further urges that the clarification issued by CBE&C vide letter dated 30.3.2013 pm applicability of Service Tax exemption to IFC and ADB, as agreed in its comprehension of UN Act, however, it has made grave error when it clarifies that the provisions of IFC Act is similar to UN Act. Both the legislations have an entirely different color and are different in terms of its coverage and conditions. Section 7(a) and Section 7(b) of the UN Act provides that exemption shall be available to direct taxes and customs duty. Section 9 of the IFC Act as also Article 56 of the ADB Act clearly provides that the exemption is available form all taxation and from all customs duties. Apart from the above, there are no provisions under the IFC Act as also the ADB Act, that is similar to Section 3, 4, 7 and 8 of the UN Act.
The fundamental distinction between the UN Act, IFC Act and ADB Act should be revealed by a perusal of Section 7(a) of the UN Act. When compared with Section 9 of IFC Act and Article 56 of the ADB Act, the fact that while UN Act grants immunity not only to IFC/ADB, its assets, income and other property, and also to its operation and transactions. As the present dispute is restricted to availability of Service Tax exemption to IFC and ADB. In any case, the phrase other international bodies, do not pertain to IFC and ADB, referred in para 4 of the CBEC clarification, has no relevant to present dispute, given that said para make reference to the position on Service Tax exemption to UN or other International bodies as per UN Act.
(xi) Once the Government of India has entered into International Treaty with ADB and IFC and agreed to confer immunity from all taxation on transactions and operations of ADB/IFC, any attempt to apply any other domestic law that may be in conflict with the ADB Act and the IFC Act, would result in India being construed as being in violation of international law and therefore, such application ought to be shunned and repelled. Reliance being placed on Hon'ble Supreme Court judgment in the case of Maganbhai Vs. UOI 1970 (3) SCC 400.
77. The effect of an international treaty on the rights of citizens of the States concerned in the agreement is stated in Oppenheim's International Law, 8th Edn., at p. 40 thus "Such treaties as affect private rights and, generally, as require for their enforcement by English courts a modification of common law or of a statute must receive parliamentary assent through an enabling Act of Parliament. To that extent binding treaties which are part of International Law do not form part of the law of the land unless expressly made so by the legislature."
And at p. 924 it is stated The binding force of a treaty concerns in principle the contracting States only, and not their subjects. As International Law is prim- arily a law between States only and exclusively, treaties can normally have effect upon States only. This rule can, as has been pointed out by the Permanent Court of International Justice, be altered by the express or implied terms of the treaty, in which case its provisions become self-executory. Otherwise, if treaties contain provisions with regard to rights and duties of the subjects of the contracting States, their courts, officials, and the like, these States must take steps as are necessary according to their Municipal Law, to make these provisions binding upon their subjects, courts, officials, and the like."
(xii) The appellant further reiterates that the Order-in-Original is bad in law on facts, in so far as it has imposed Service Tax as per extension period/demand/interest under section 75 of the Finance Act, 1994 and penalties under Sections 76, 77 & 78 of the Finance Act, 1994, is not tenable as there is a strong prima facie case. Even if Service Tax is found to be payable as there is no fault on appellants part, they should be entitled to benefit of Section 80 of the Finance Act, 1994.
(xiii) Alternate argument submitted by the appellant on the charges/expenses levied on the assuming arguendo, that IFC Act or the ADB Act cannot be adopted to seek service tax immunities.
(a) Commitment charges being in nature of interest should be available as deduction from levy of Service Tax as per Section 6(2)(iv) of Service Tax (Determination of Value) Rules, 2006. It was only in year 2012, the term interest was specifically defined in the Finance Act under Section 65B(30), to specifically exclude commitment charges within the meaning of the term interest. Accordingly, during the period of present dispute i.e. March, 2008 to Sept, 2010, it is unwarranted to read such exclusion to the meaning of the term interest under the Finance Act. As per Hon'ble Bombay High Court in the case of LIC Vs. JCIT 2002 (74) TTJ-Mum 624 and held that commitment charges are akin to interest.
(b) Waiver charges are nothing but excess over principal and must be treated as interest. Reliance is being placed on decision of the Hon'ble Madras High Court in the case of V. Srinivasachariar (1940) 2 MLJ 478.
(c) It is not permissible for the Revenue to seek to levy Service Tax on out of pocket expenses i.e. other expenditure and cost incurred by the service provider in the course of providing taxable service as held by Hon'ble Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. 2012-TIOL-966-HC-DEL-Service Tax.
3. On the other hand, the learned AR appearing for the Revenue reiterates the findings of the lower authorities. He also submitted that as per provision of Section 3, it is clear that each and every transaction of the IFC is not exempted from levy/payment of tax/duty. If the income, operations and transactions of IFC is exempted from payment of duties/taxes, in all cases as contended by the appellant then there was no need of proviso to Section3 as stated above. In fact clause (c) to proviso of Section 3, provides for non-applicability of immunity for services rendered by IFC. Similarly, provisions exist in ADB Act i.e. Section 5, therefore services rendered by ADB are also not immune from Service Tax.
3.1 Further, learned AR states that opinion given by CBE&C regarding liability of Service Tax on IFC/AND is unambiguous and clear. As submitted by the appellant that unlike, UN Act, there is no provision under IFC Act or ADB Act regarding levy of excise duty and taxes as incorrect. Proviso to Section 3 of IFC Act and proviso to Section 5 of ADB Act provides that there is no immunity from duties and taxes. Wherever intention of the Govt. is to provide exemption from levy of duty/taxes in the light of provisions in another Act or law, a provision to that effect has been made in the taxing statutes also. Hence, the submissions made that the IFC Act/ADB Act provides exemption from duties and taxes in all cases will make the proviso to Section 3 of the IFC Act and proviso to Section 5 of the ADB Act redundant and it is established that no law should be interpreted in a way to make it redundant.
3.2 The learned AR further stated that in respect of demand of duty on various charges, which have been made part of the assessable value, no Service Tax is leviable on commitment fee as it comes within the term interest and on out of pocket expenses as it is reimbursable expense. It is a well settled law that definition or word or expression given in one statute cannot be applied to another taxing statute. Even the analogy of one taxing statute cannot be applied in interpreting the provisions of another taxing statute. The Hon'ble Karnataka High Court in the matter of CIT, Bangalore Vs. Ecom Gill Coffee Trading Pvt. Ltd. 2014 (35) STR 320 (Kar), has held as under: -
An interpretation placed in a particular enactment cannot be just engrafted to the provisions of another enactment, assuming that the same provision or similar analogous and the language is more or less similar. The provisions of Section 254(2A) has its own legislative history and amendments have been brought about against this provisions and therefore, we are afraid that we cannot just accept any interpretation which has been placed on a statutory provision occurring in a different legislation, wherein the circumstances could have been quite different. 3.3 The learned AR further submitted that the claim of the appellant is on the basis of term interest given in the Interest Tax Act, cannot be made applicable to Service Tax as per common paralance the term does not include commitment charges.
(Pronounced in Court on .) (P.S. Pruthi) (Anil Choudhary) Member (Technical) Member (Judicial) Sinha 13