2015 (12) TMI 1061 - HC - Service Tax

Waiver of pre-deposit - mandatory pre-deposit @7.5% or substantial amount as directed by the tribunal - underwriters services - assessee had entered into an underwriting agreement with various organisations, for the sale and purchase of American Depository Shares, by the underwriters - Interest u/s 75 - Penalty u/s 76, 77 & 78 - Held that - at this stage of the hearing of the appeals, the learned Senior counsel, appearing on behalf of the appellant, had submitted that in view of the facts and circumstances of the case, and in view of the fact that, as per the amendment brought forth during the year, 2014, the appellant may be liable to make a pre-deposit of only 7.5% of the demand. In such circumstances, he had offered that the appellant would deposit a sum of ₹ 5 crores, as pre-deposit, towards the service tax, for the hearing of the appeal before the Customs, Excise and Service Tax Appellate Tribunal. It is appropriate to set aside the orders passed by the Tribunal, on 29.5.2015 and 11.9.2015, and to direct the appellant to deposit a sum of ₹ 5 crores, as pre-deposit towards the service tax, within a period of four weeks from the date of receipt of a copy of this order. The penalty and the interest imposed on the appellant stands waived till the disposal of the appeal - Appeal disposed of.

Issues Involved:
1. Liability of service tax on commission paid to foreign underwriters.
2. Applicability of Section 66A of the Finance Act, 1994, independent of the Taxation Services Rules, 2006.
3. Requirement of pre-deposit for appeal hearing.
4. Jurisdictional error and natural justice principles in Tribunal's orders.
5. Revenue neutrality of the tax dispute.
6. Consistency in judicial decisions and pre-deposit amounts.

Detailed Analysis:

1. Liability of Service Tax on Commission Paid to Foreign Underwriters:
The appellant, engaged in manufacturing copper products, issued American Depository Shares (ADS) to raise capital. The underwriters for these shares, located outside India, received commissions for their services. The department argued that these services were liable for service tax under "underwriter services" as per Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, read with Section 66A of the Finance Act, 1994. The appellant contended that the services were performed entirely outside India and the underwriters were not registered with SEBI, thus not covered under Section 65(105)(z) of the Act.

2. Applicability of Section 66A of the Finance Act, 1994, Independent of the Taxation Services Rules, 2006:
The Tribunal held that Section 66A should be read independently of the Taxation Services Rules, 2006. The appellant challenged this, arguing it was contrary to legislative intent and provisions of the Finance Act, 1994.

3. Requirement of Pre-deposit for Appeal Hearing:
The Tribunal directed the appellant to deposit Rs. 7 crores as a pre-condition for hearing the appeal. The appellant argued this was excessive and beyond the scope of the dispute, especially given that the underwriters were located outside India. The appellant offered to deposit Rs. 5 crores, citing amendments in 2014 that required only a 7.5% pre-deposit of the demand.

4. Jurisdictional Error and Natural Justice Principles in Tribunal's Orders:
The appellant claimed the Tribunal's orders were vitiated by jurisdictional errors and violated principles of natural justice. The Tribunal's decision to require a pre-deposit was seen as inconsistent with other judicial decisions and the Tribunal's own precedent.

5. Revenue Neutrality of the Tax Dispute:
The appellant highlighted that the Commissioner had acknowledged the dispute as revenue-neutral, suggesting that no tax liability should be imposed. This was used to argue against the necessity of a high pre-deposit.

6. Consistency in Judicial Decisions and Pre-deposit Amounts:
The appellant pointed to judgments from the Punjab and Haryana and Rajasthan High Courts, which suggested that pre-deposits should not exceed 75% of the disputed tax amount. The Tribunal's order for a Rs. 7 crore pre-deposit was argued to be inconsistent with these precedents.

Judgment:
The High Court considered the submissions and found it appropriate to set aside the Tribunal's orders dated 29.5.2015 and 11.9.2015. The appellant was directed to deposit Rs. 5 crores as a pre-deposit towards the service tax within four weeks. The penalties and interest imposed on the appellant were waived until the disposal of the appeal. The Civil Miscellaneous Appeals were ordered accordingly.

← Previous Next →