2014 (1) TMI 200 - AT - Service Tax

Waiver of pre deposit - Reverse charge mechanism - Demand of service tax - Arrangement for the external commercial borrowings - Banking and Financial services - Held that - appellant had contracted with the upcountry party for the purpose of raising external commercial borrowings for setting up a unit in Special Economic Zone. It is also undisputed that the said external commercial borrowings could not be raised and arrangement had to be cancelled and the appellant has received the amount back from the agency to whom they had given advance. Be that as it may, we find that Notification No. 4/2004-S.T. specifically discuss about the exemption of taxable service of any description to a developer of Special Economic Zone or any unit in any Special Economic Zone for consumption of the services within such Special Economic Zone. It is undisputed that external commercial borrowing was for the purpose of developing a unit in SEZ; the appellant has made out a strong prima facie case for waiver of pre-deposit of amounts involved - Stay granted.

Summary

Issues:
Waiver of pre-deposit of service tax under reverse charge mechanism on grounds of external commercial borrowings for setting up a unit in Special Economic Zone.

Analysis:
The case involved a stay petition seeking the waiver of pre-deposit of service tax amounting to Rs. 3,39,55,471/- along with interest and penalties under various sections of the Finance Act, 1994. The liability was confirmed under the reverse charge mechanism on the appellant due to arrangements made for external commercial borrowings. The Revenue contended that the services fell under the category of Banking and Financial services. The appellant argued that they were eligible for the benefit of Notification No. 4/2004-S.T. as the external commercial borrowing was intended for setting up a unit in a Special Economic Zone.

Upon reviewing the submissions and records, it was established that the appellant had indeed contracted for external commercial borrowings to establish a unit in a Special Economic Zone. Although the borrowing arrangement was canceled, and the amount was returned, the Notification specifically exempted taxable services for the development of a unit in a Special Economic Zone. As the purpose of the external commercial borrowing was in line with this exemption, the appellant successfully made a strong prima facie case for the waiver of the pre-deposit amounts.

Consequently, the Tribunal allowed the application for the waiver of pre-deposit of the amounts involved and stayed the recovery until the appeal's disposal. The decision was made based on the interpretation of the relevant Notification and the specific circumstances of the case, emphasizing the importance of the purpose of the external commercial borrowing in relation to the development of a unit in a Special Economic Zone.