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PJ/CASE LAW/2014-15/2428

Beneficiary of service is not liable to pay service tax under reverse charge mechanism.

Case:-KINGFISHER AIRLINES PVT LTD Vs COMMISSIONER OF SERVICE TAX, MUMBAI
 
Citation:-2014-TIOL-2112-CESTAT-MUM

Brief Facts:-The appellant is in appeal against the impugned order wherein service tax has been demanded along with interest from them by invoking the extended period of limitation.
 
The facts of the case are that the appellants have an agreement for lending the money by BNP Paribas to purchase aircraft. BNP Paribas agreed to lend the money to the appellant on agreed terms. BNP Paribas secured their loans through COFACE in France for lending the money to appellant and pay insurance guarantee. Revenue is of the view that the service given to BNP Paribas is a service received by the appellant, therefore, same is covered under Banking and Finance Institution service. Accordingly, appellant is liable to pay service tax under Reverse charge mechanism. Proceedings were initiated against the appellant and demand along with interest has been confirmed by invoking the extended period of limitation. While passing the adjudication order, the ld. Comm. did not impose any penalty on the appellant by giving the benefit of section 80 of the Finance Act, 1994 holding that there was no malafide intention of the appellant not to pay service tax. Aggrieved from the same, the appellant is before Tribunal.
 
Appellant contentions:- Shri Sunil Agarwal, ld. Counsel for the appellant appeared and submits that the appellant is not liable to pay service tax as the amount of insurance guarantee was paid by BNP Paribas to COFACE France for providing insurance guarantee on the money lended (sic) on account of insurance premium of the money lended (sic) to the appellant. There is no service received by the appellant although the appellant is beneficiary of that transaction. In these circumstances, appellant is not liable to pay service tax under the category of Banking and Finance Institution service under Reverse charge mechanism. He further submits that the service tax demand has been confirmed by invoking the extended period of limitation, whereas the Commissioner has dropped the penalty by giving benefit of section 80 of the Finance Act, 1994 holding that the appellant has explained satisfactorily the reasons for not paying service tax. Therefore, the demand invoking extended period of limitation is required to be set aside.
 
Respondent Contentions:- On the other hand, ld. AR submitted that the appellant is the receiver of the service directly or indirectly provided by COFACE to BNP Paribas. In these circumstances, the appellant is required to pay service tax under Reverse charge mechanism. He further submits that the appellant has suppressed the fact that on the said amount of insurance guarantee they are not paying service tax, therefore, the ld. Commissioner has rightly invoked the extended period of limitation. In these terms, the impugned order is required to be upheld.

Reasoning of Judgment:- In this case, the issue as appeared before Tribunal is that who is the service provider and who is the service receiver. The facts of the case are clear and show that the money lender BNP Paribas has secured the loan amount lended (sic) to appellant from COFACE France and have secured their money they have paid insurance guarantee to COFACE France. When these facts are clear in this case, therefore, the service receiver is BNP Paribas and the service provider is COFACE, France. The appellant is only the beneficiary of the transaction held between BNP Paribas and COFACE, France. As the appellant is neither service provider nor service recipient, the appellant is not liable to pay service tax at all under Reverse charge mechanism.
 
In these terms, we set aside the impugned order and allow the appeal with consequential relief, if any.
 
Decision:- Appeal allowed.

Comment:- The gist of the case is that when the service receiver is different and the beneficiary of service is different, then the beneficiary of service cannot be compelled to pay service tax under reverse charge mechanism.
 
Prepared by: Meet Jain
 
 
 
 

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