2014 (10) TMI 201 - AT - Service Tax

Underwriting service or Merchant Banking Services - services of facilitating issue of the said GDRs - services received from abroad - Revenue is demanding the Service Tax as Merchant Banking Services listed at (iii) under the category of Banking and other Financial Services under Section 65 (12) of the Finance Act, 1994 while the appellant claims the service to be underwriting service under Section 65 (105) (z) and 65 (117) of the Finance Act, 1994. - Held that - It is evident that for purposes of Finance Act, 1994, Underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them. Thus in our view first and foremost condition is that securities are offered to the public or existing shareholders. The next requirement is an agreement to subscribe to the securities when the public or existing shareholders do not subscribe to the securities offered to them. This agreement is to be between the body corporate (whose securities are offered for sale) and the underwriter. Thus in brief, underwriting service as per Finance Act, 1994, would imply an agreement to subscribe the unsubscribed securities which were offered for sale to public or existing shareholders. Appellant has issued and sold the GDRs to Joint Lead Manager who in turn would resell, all or a portion of the offered GDRs by making an offering to the subsequent purchasers. This is not what is envisaged in underwriting as defined under Finance Act, 1994. What is envisaged is to make offer to public or existing shareholders, whatever is not subscribed that has to be purchased/subscribed in terms of an agreement by a person i.e. underwriter. Thus the Joint Lead Manager who purchased GDR s cannot be considered as underwriter providing underwriting service. Even the agreement dated 23.07.2007 is titled as Purchase Agreement . We therefore hold that services provided by M/s Citi and M/s Goldman Sach Ltd. are not underwriting service within the meaning of Finance Act, 1994. Since the issue whether the service provided by the service provider can be considered as underwriting service within the meaning of Finance Act, 1994 was neither raised nor discussed in the case of M/s Jubiliant Life Science Ltd. 2013 (5) TMI 393 - CESTAT NEW DELHI , the same does not help the cause of appellant. The said judgement has to be considered as per incuriam. A perusal of provisions of banking and other financial services, do not indicate that for charging Service Tax, merchant bankers or body corporate or commercial concern is required to be registered with SEBI. As long as the said service is being provided. Service Tax will be chargeable. Further, a perusal of the said definition indicates that services received by the appellant from M/s Citi and M/s Goldman Sach Ltd. will get covered by the scope of the service. We therefore hold that services received by the appellant is covered by the scope Banking and other financial services - Decided against the assessee. Extended period of limitation - Held that - In this case GDR s were issued in July, 2007 and these would be available in Balance Sheets of 2007-08 which will normally be available after Sept. 2008. Even this Balance Sheet is not required to be submitted to the Range Supdt. /Asst. Commissioner. We also note that demand notice is issued on 13.01.2009. What is required is whether details were mentioned in the ST-3 returns filed and if so, when? Clearly, no such details were mentioned in ST-3 returns. Department was also not informed about the service received and the payment made thereon in connection with issue of G.D.R. Even the ST-3 returns are self assessed by the appellants. - Since there was suppression of facts, we hold that extended period is correctly invoked. Demand with interest and penalty confirmed. - Decided against assessee.

Summary

Issues Involved:

1. Classification of services provided by non-resident service providers (whether they qualify as "underwriting services" or "merchant banking services").
2. Applicability of Service Tax under the reverse charge mechanism.
3. Invocation of the extended period of limitation for issuing the show-cause notice.

Detailed Analysis:

1. Classification of Services:

The primary issue is whether the services provided by M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International qualify as "underwriting services" under Section 65(105)(z) of the Finance Act, 1994, or as "merchant banking services" under Section 65(12) of the Finance Act, 1994. The appellant claimed the services were underwriting services, citing the agreement dated 08.06.2007 and the purchase agreement dated 23.07.2007, which involved the purchase and resale of Global Depository Receipts (GDRs). The appellant relied on definitions and precedents, including the Securities and Exchange Board of India (Underwriters) Regulations, 1993, and the Tribunal's judgment in Jubiliant Life Science Ltd. [2013 (29) STR (T)].

The Tribunal, however, concluded that the services provided by M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International did not qualify as underwriting services. The Tribunal emphasized that underwriting, as defined under the Finance Act, 1994, involves an agreement to subscribe to securities that the public or existing shareholders do not subscribe to, which was not the case here. The agreements indicated that the GDRs were sold to the Joint Lead Managers, who then resold them to subsequent purchasers, which does not fit the definition of underwriting.

2. Applicability of Service Tax:

The Tribunal held that the services received by the appellant from M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International were not underwriting services but fell under "Banking and other Financial Services" as defined under Section 65(12) of the Finance Act, 1994. Consequently, the services were subject to Service Tax under the reverse charge mechanism. The Tribunal rejected the appellant's contention that the services were provided and consumed outside India and thus not taxable under Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.

3. Invocation of Extended Period of Limitation:

The Tribunal upheld the invocation of the extended period of limitation for issuing the show-cause notice. The appellant argued that there was no suppression of facts as the GDR issue was widely known, and records were audited. However, the Tribunal noted that the details of the services received and payments made were not disclosed in the ST-3 returns filed by the appellant, and the department was not informed. The Tribunal cited the proviso to Section 73(1) of the Finance Act, 1994, which allows for an extended period in cases of suppression of facts, and concluded that the extended period was correctly invoked.

Conclusion:

The Tribunal dismissed the appeal, holding that the services provided by M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International were not underwriting services but fell under "Banking and other Financial Services." The Tribunal also upheld the applicability of Service Tax under the reverse charge mechanism and the invocation of the extended period of limitation. The penalties under Section 77 and 78 of the Finance Act, 1994, were also upheld.