2015 (11) TMI 471 - AT - Service Tax

Demand of service tax - import of services - reverse charge - payment of arrangement fees, underwriting fees, agency fees and legal fees as also out of pocket expenses - Imposition of penalty - Held that - Appellant has received the service from consortium of Mandated Lead Managers in respect of facility arrangements in relation to raising of external commercial borrowings - service tax liability on an amount paid to the lead managers i.e. service providers, who have raised the external commercial borrowings in form of external commercial borrowings as to fee of arrangement and underwriting fee plus agency fee is undisputedly taxable under the category of banking and other financial service and taxable as per the provisions of Section 66A of the Finance Act, 1994, in hands of the appellant. To that extent, we uphold the service tax liability and interest thereof. Extended period of limitation and levy of penalty - held that - appellant is having a good case on the revenue neutrality, inasmuch any service tax paid by them under reverse charge mechanism is eligible as Cenvat credit as the external commercial borrowings are for the purpose of business activity of the appellant. Keeping this in mind, we find that the appellant had made out a case for non-imposition of penalty; invoking the provisions of Section 80 of the Finance Act, 1994, we set aside the penalties imposed on the service tax liability. Inclusion of reimbursement of expenses - Held that - As regards the service tax liability on an amount paid by the appellant for legal fees and out of pocket expenses, we find that the appellant has not been able to produce any documentary evidence before us to show that these amounts were in fact paid on actual basis. In the absence of any such documentary evidence, we are unable to accept the plea of the appellant. - Matter remanded back - Impugned order is set aside - Decided partly in favour of assessee.

Summary

Issues involved:
Service tax liability on service recipient from abroad, challenge against penalties, service tax liability on legal fees and out of pocket expenses.

Analysis:

1. Service tax liability on service recipient from abroad: The appellant sought services from foreign service providers for raising external commercial borrowings. The Revenue alleged non-payment of service tax liability by the appellant. The lower authorities confirmed demands, interest, and penalties. The appellant accepted liability for certain fees under reverse charge mechanism but contested penalties and the tax liability on legal fees and out of pocket expenses.

2. Challenge against penalties: The appellant argued that they had already discharged their service tax liability for certain fees and were contesting the imposition of penalties. The Counsel cited a judgment by the High Court of Delhi to support their claim that legal fees and out of pocket expenses were reimbursable actual expenses incurred by the service providers as per the agreement.

3. Service tax liability on legal fees and out of pocket expenses: The Revenue contended that there was no evidence to prove that legal fees and out of pocket expenses were actual reimbursements. They argued that penalties were rightly imposed due to the violation of provisions. The Tribunal found that the appellant had received services from lead managers and paid fees as per the agreement. The tax liability on certain fees was upheld, but penalties were set aside based on the principle of revenue neutrality.

4. Judgment and Remand: The Tribunal upheld the service tax liability on certain fees paid to lead managers but set aside penalties, considering the revenue neutrality aspect. However, regarding legal fees and out of pocket expenses, the Tribunal found a lack of documentary evidence to prove actual reimbursement. The matter was remanded to the adjudicating authority for further consideration based on any documentary evidence presented by the appellant. The Tribunal emphasized the need for a reassessment in light of the absence of conclusive evidence.

5. Conclusion: The appeal challenging the service tax liability on specific fees was partly rejected, with penalties being set aside. The issue of tax liability on legal fees and out of pocket expenses was remanded for further review based on potential documentary evidence. The Tribunal's decision aimed to ensure a fair assessment of the disputed expenses and penalties, emphasizing the importance of substantiating claims with appropriate documentation.