2015 (8) TMI 958 - AT - Service Tax

Waiver of pre deposit - Underwriter service - Assessee contends that the underwriting was rendered by the foreign underwriting firms and the entire service was rendered outside India and no part of the service was performed in India - Held that - as per RBI Clarification No.13 relating to guidelines for ADR/GDR issues by the Indian Companies the appellants are free to access the ADR/GDR markets through an automatic route without the prior approval of the Ministry of Finance Department of Economic Affairs. - Section 66A of the Finance Act 1994 prescribes levy of service tax on services provided by service provider abroad having fixed establishment thereat to a person in India having fixed establishment in India. It is fundamental principle of that section to treat the recipient of such service as provide thereof and levy tax on such service. This is with a view to obviate the difficulty of bringing a foreign service provider to the Indian law for taxation. Therefore provision of taxable service by a party outside India to the recipient in India is sufficient compliance to taxability. Prima facie looking into various aspects of the case and without prejudice to the grounds of appeal of appellant as well as contentions of Revenue and also taking into consideration the limitation aspect it appears that the service provided having relation to underwriting of shares of the Indian Company (appellant) provided in any manner brings that service to fold of section 65 (105)z of the Finance Act 1994 and also considering the scheme of Reverse charge mechanism appellant is directed to deposit 7, 00, 00, 000 within eight weeks from the date of receipt of the order - stay granted partly.

Summary

Issues Involved:

1. Waiver of pre-deposit.
2. Taxability of services provided by underwriters located outside India under the reverse charge mechanism.
3. Applicability of SEBI regulations to foreign underwriters.
4. Limitation and extended period for issuing show cause notices.
5. Compliance with Section 66A of the Finance Act, 1994 and related rules.

Issue-wise Detailed Analysis:

1. Waiver of Pre-deposit:
The appellants filed a stay application seeking waiver of the pre-deposit amounting to Rs. 25,49,32,832/- along with interest and penalties. The Tribunal directed the appellants to deposit Rs. 7,00,00,000/- within eight weeks from the date of receipt of the order and make compliance on 19th August 2015.

2. Taxability of Services Provided by Underwriters Located Outside India:
The appellants argued that the underwriting services were performed entirely outside India and were meant for overseas entities, thus not taxable in India. They relied on the definition of "underwriter" under SEBI regulations, asserting that the foreign underwriters were not registered with SEBI and hence not covered under "underwriting services" for the purpose of the Finance Act, 1994. However, the Tribunal noted that Section 65(105)(z) of the Finance Act, 1994, read with clauses (116) and (117), does not stipulate that the underwriter must be registered with SEBI for the service to be taxable. Therefore, the appellant's contention was not accepted.

3. Applicability of SEBI Regulations to Foreign Underwriters:
The Tribunal clarified that the meaning of "underwriter" and "underwriting" as per SEBI rules is incorporated in the Finance Act, 1994, but registration with SEBI is not a mandatory requirement for taxing the service. The Tribunal emphasized that the provision of taxable services by a party outside India to a recipient in India is sufficient for taxability under Section 66A of the Finance Act, 1994.

4. Limitation and Extended Period for Issuing Show Cause Notices:
The appellants contended that the show cause notices were time-barred as they had disclosed the payments made to overseas parties in their balance sheet, a public document, and the internal audit team had visited in 2008. The first show cause notice was issued on 11.11.2011, and the second on 16.5.2013, both invoking the extended period. The Tribunal noted that the extended period was rightly invoked as the appellant had previously intimated that no underwriting commission was paid during the year 2009-10.

5. Compliance with Section 66A of the Finance Act, 1994 and Related Rules:
The Tribunal discussed the fundamental principle of Section 66A, which treats the recipient of services provided by a foreign service provider as the provider thereof, thus levying tax on such services. The Tribunal noted that the underwriting service is performance-based, covered by Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. It is not necessary for the foreign service provider to perform the service in India. The Tribunal emphasized that the 2006 Rules cannot override the basic structure of the enactments, and the recipient in India is liable for service tax under the reverse charge mechanism.

Conclusion:
The Tribunal directed the appellants to deposit Rs. 7,00,00,000/- within eight weeks and make compliance on 19th August 2015, considering the various aspects of the case, including the limitation aspect and the scheme of the reverse charge mechanism. The Tribunal's decision was pronounced in open court on 29.5.2015.