Custom, Excise & Service Tax Tribunal
M/S Jm Financial Services Pvt. Ltd vs Commissioner Of Service Tax, Mumbai-I on 20 March, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. ST/236/11 (Arising out of Order-in-Original No. 37-38/STC-1/BR/10-11 dated 13.1.2011 passed by the Commissioner of Service Tax, Mumbai-I). For approval and signature: Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) ======================================================
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 JM Financial Services Pvt. Ltd. Appellant Vs. Commissioner of Service Tax, Mumbai-I Respondent Appearance: Shri V.K. Jain, Advocate with Shri Vishal Agarwal, Advocate for Appellant Shri V.K. Agarwal, Addl. Commissioner (AR) for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 20.02.2013 Date of Decision: .03.2013 ORDER NO. Per: Anil Choudhary
This appeal arises out of Order-in-Original No. 37-38/STC-1/BR/10-11 dated 13.1.2011 passed by the Commissioner of Service Tax, Mumbai-I by which proposed demand of Rs.5,54,41,217/- under the category of Business Auxiliary Services was confirmed being the amounts received towards income from financing of IPO and processing fees received from the Bank for the purpose of choosing a particular Bank for deposit of the IPO money. Second demand was confirmed under the category of Business Support Services amounting to Rs.3,29,410/- and penalty was confirmed under Section 78 of the Finance Act, 1994 amounting to Rs.5.5 crores as well as Rs.5000/- under Section 77 of the Finance Act, 1994 and interest was ordered to be levied under Section 75 of the Act towards delayed payment of Service Tax.
2. The appellant M/s JM Financial Services Pvt. Ltd. is a class 1 merchant banker registered with SEBI, having its registered office at Mumbai and also registered with Service Tax department .
3. As per the show-cause notice, it was found that the appellant was providing various services classifiable under the category of Business Auxiliary Services, Banking & Financial Services and Business Support Services but is not discharging Service Tax liability on some of the services, namely:-
(i) Brokerage/Commission IPO
(ii) Brokerage/Commission fixed income product
(iii) IPO Finance Fee
(iv) Processing Fee
(v) Recovery of commission expenses
4. The show-cause notice was issued on 15.10.2008 after an enquiry spread over last two and half years and extended period was also invoked under the provisions of Section 73 of the Finance Act, 1994 alleging that the appellant have suppressed the nature and quantum of receipts with a view to evade Service Tax liability. The show-cause covered the period 1.7.2003 to 31.3.2008. A supplementary show-cause notice was issued on 5.3.2010 relating to the period April, 2008 to March, 2009 for bringing of tax amount of Rs.26,65,132/- received as processing fee from the Banks wherein the share application money was deposited with, pursuant to closure of the Public Offer pending allotment.
5. Business Auxiliary Services Under this heading, the amounts received as processing fees from the Bank have been charged to Service Tax. The brief facts are that the appellant being Book Running Lead Manager managing the IPO is under contract-obligation to deposit the cheques/share application money received with the applications in favour of the issuing company, in one of the specific banks. The appellant exercises its option by choosing a particular bank for keeping the application money, pending allotment of shares as the Lead Manager. The Bank where application money is kept with, pending allotment, is under no obligation to pay any amount to any person or the appellant depositing the money with it. The payment made by the Bank to the appellant is in the nature of reward for doing business with it or an incentive for keeping the money with them temporarily. The bank with which the money is kept, benefits by way of interest on the money available for a few days, which is payable on demand.
5.1 In the impugned order it has been held that it cannot be denied that the payment made by the Bank is a reward to the appellant for doing business with it or the incentive for giving business to the bank, observing that the transaction is covered as the taxable service under the category of Business Auxiliary Services, the same has been held liable to Service Tax.
5.2 The contention of the appellant is that the receipt from the bank is not linked to any services nor it is linked to the interest earned by the bank. Thus, there is no element of promotion of business or marketing of business for the bank. The investor whose money is deposited is not even aware as to with which bank his share application money is deposited. Further, the situation is revenue neutral as the credit of Service Tax, if any, discharged by the appellant would be available to the concerned bank and accordingly there is no intention of the appellant to evade Service Tax on this account.
5.3 Having considered the rival submissions, we find that there is no element of promotion or marketing of any services of the bank nor any service has been provided to the bank by the appellant on behalf of any client. This being the position, the tax liability on the incentive or processing fees received from the Bank is held to be not taxable to Service Tax under the heading Business Auxiliary Services.
6. Banking & Financial Services The brief facts of the case are that as a Lead Manager and Advisor for the IPO, the appellant advises their clients (prospective investors) to invest in the shares/debenture of the particular company. Some of the investors of the appellant require short term funding for applying in the Public Issue. The appellant has entered into an agreement with M/s JM Lease Consultant Pvt. Ltd., which is a company registered with the Reserve Bank of India as Non-Banking Financial Company (NBFC) having its main objects of leasing investment and lending. As per the agreement, which is annexed as Annexure-B in the appeal memorandum, the appellant will recommend and forward the loan applications of its clients for investing to the said finance company. Further, the appellant stands guarantee for the due repayment of the loans, taken by its clients, whereas the financing company assures to finance the clients of the appellant to facilitate them to participate in the Public Issue for a period ranging from 15 to 45 days. The agreement further provides in clause 3 that the parties i.e. the appellant and the finance company agree to share equally the net profits or losses to be earned in each of the funding transactions.
6.1 The contention of the Revenue is that the activity undertaken by the appellant involves a service to the NBFC, a finance company. Though the said service to the NBFC may not strictly get covered by the provision on behalf of the client the activity is definitely covered by the clause promotion of business of NBFC companies. Though the payments that the appellant received, was claimed as a share of income, it is in fact the remuneration for the service provided and, therefore, the same is taxable to Service Tax under the category of Business Auxiliary Services.
6.2 The contention of the appellant is that the activity is share of profit being the activity on principal to principal basis and the revenue sharing arrangement with NBFC is akin to partnership or the joint venture. By no stretch of imagination, the same can be considered as services rendered. The appellant further relies on a Boards Circular No. 109/3/2009-Service Tax dated 23.2.2009, wherein in para 2.2 it has been clarified in respect of Cinema/Theater - that where the arrangement between the theater owner and the distributor is on revenue sharing basis, in such case, the two contracting parties act on principal-to-principal basis and one does not provide service to another. Hence, in such an arrangement, the activity is not covered under Service Tax.
6.3 Having considered the rival contentions, we are of the view that no service has been rendered by the appellant to the finance company and the activity has been done on principal-to-principal basis. Accordingly, no Service Tax is leviable on the amount received by the appellant by way of share of income from NBFC in the activity of financing.
7. Business Support Services During the period 1.5.2006 to 31.3.2008, the appellant has recovered Rs.3,35,866/- by way of reimbursement of common expenses like electricity etc. from the other group companies. The stand of the Revenue is that the amount recovered on account of infrastructural support services, which falls under the category of Business Support Services. Further case of the Revenue is that as the appellant has not submitted any documentary evidence in support of his contention as to why the amount received is not taxable under the category of Business Support Services and accordingly held the same liable to tax under the category of Business Support Services.
7.1 The contention of the appellant is that the amount is received by way of reimbursement of electric charges and office expenses from other group companies. In actual, no service has been rendered to the other group companies. So far receipt of Rs.2,72,269/- is concerned, the same relates to the receipt on account of infrastructural support provided to the group companies on which liability has been admitted by the appellant. So far electric charges and other expenses are concerned, the same have been received by way of share of the expenses and no service has been rendered, and accordingly, reimbursement of expenses is not leviable to Service Tax. Further, the Revenue has not discharged their onus by establishing that the taxable service has been rendered or any service has been rendered under the category of Business Support Services.
7.2 Having considered the rival submissions and contentions, we are of the view that in respect of reimbursement of common expenses in the nature of electricity and other expenses incurred commonly by the appellant, no service can be stated to have been rendered and accordingly, the same not liable to Service Tax.
8. So far the penalties are concerned, in view of the findings recorded above, the penalties imposed under Section 77 and 78 of the Finance Act, 1994 are set aside.
9. To sum up,
(i) we set aside the levy of Service Tax on the share income as the result of IPO financing received from the NBFC company.
(ii) we set aside the leviability of Service Tax in respect of Processing Fee received from the Bank,
(iii) we set aside the levy of Service Tax on the reimbursement of common expenses such as electricity charges, common office expenses etc., and
(iv) we set aside the penalties imposed on the appellant.
10. In result, the appeal is allowed.
(Pronounced in Court on .)
(P.R. Chandrasekharan) (Anil Choudhary)
Member (Technical) Member (Judicial)
Sinha
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