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PJ/CASE LAW/2016-17/3218

Whether service tax be levied under reverse charge mechanism on the amount paid for the services received for raising ECB?

Case-GITANJALI GEMS LTD. VersusCOMMISSIONER OF SERVICE TAX, MUMBAI-I

Citation-   2016 (43) S.T.R. 230 (Tri. - Mumbai)

Brief Facts-The relevant facts that arise for consideration are that the appellant herein had raised external commercial borrowings (ECB) in the form of foreign currency convertible bonds in the month of November, 2006 and had appointed an agency to conduct such activity. The appellant entered into an agreement with M/s. Jefferies International Ltd., in respect of the payments made and related expenses in respect of such raising of external commercial borrowings (ECB). Appellant paid the said Jefferies International Ltd. an amount towards the services rendered by them. Revenue is of the view that the amount paid by the appellant to M/s. Jefferies International Ltd. is liable to be taxed under reverse charge mechanism for service tax under ‘banking and other financial services’. The show   cause notice was adjudicated after following due process of law, the demands were confirmed along with interest and equivalent amount of penalty has been imposed.

Appelants Contention-The learned counsel would draw our attention to the facts of the case, show cause notice and also the order-in-original. It is his submission that they were contesting the taxability of the amount in their hands under the reverse charge mechanism and such tax liability does not arise. He fairly submit that the issue is now settled by the majority decision of the Tribunal in the case of Tata Steel Limited v. Commissioner of Service Tax, Mumbai-I - 2015-TIOL-2464-CESTAT-MUM = 2016 (41) S.T.R. 689 (Tri.-Mumbai). It is his submission that interest liability and the penalties be set aside as the issue was being agitated and had to be settled by majority decision in November, 2015. Hence there cannot be any mala fide intention not to pay the tax.
 
Respondents Contention-Learned Departmental Representative submits that the issue in this case on merits is squarely decided against the appellant and produced a copy of the majority decision.

Reasoning Of Judgement-After considering the submissions made by both the sides and on perusal of the records, we find that the issue involved in this case is regarding service tax liability on the amount paid by the appellant to M/s. Jefferies International Ltd. for the services rendered by them for raising ECB for the appellant. It is undisputed that the amounts are paid by the appellant and under the reverse charge mechanism service tax liability arise. We find that the majority decision in the case of Tata Steel Ltd. (supra) has settled the issue, wherein it was held that service tax liability under reverse charge mechanism arises on the person making the payment for the services rendered by an intermediary who helps in raising the ECB. In view of this we hold that the appellant has no case on merits. Respectfully following the said judgment of the Tribunal in the case of Tata Steel we hold that the service tax liability arise on the appellant in respect of the amounts paid to M/s. Jefferies International Ltd. for raising the ECB.
 Since the amount of service tax liability gets fastened, consequential interest liability also arise on the appellant. Accordingly, we hold that the appellant is liable to pay interest on such amount of service tax liability.
As regards the plea of the learned counsel for the appellant for setting aside the penalty imposed, on a specific query from the bench, it was stated that the appellant has not paid the entire amount of the service tax liability and the interest thereof. The appellant has only paid 50% of the amount of service tax liability. We find that the provisions of Section 80 cannot be invoked in this case as there being no discharge of service tax liability and interest thereof the penalty imposed on the appellant needs to be upheld as there is no justifiable reason or cause shown for setting aside the penalties.

Decision- Appeal is rejected

Comment- The gist of the case is that service tax will be levied under reverse charge mechanism on-GITANJALI GEMS LTDin respect of the amounts paid to M/s. Jefferies International Ltd. for raising the ECB and interest is also payable in accordance with Section 73 of Finance Act, 1994. Since there is no justifiable reasons or cause shown, so there is no ground for waiving penalty which will also be payable.

Prepared By-  Praniti Lalwani
 

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