2019 (1) TMI 1885 - AT - Service Tax

Classification of services - underwriting services or merchant banking services? - activity to perform as the exclusive agent for Radico for identifying potential purchaser for the securities of Radico - reverse charge mechanism - HELD THAT - At the adjudicating stage the respondent had produced signed copies of the agreement dated 30.06.2006 which were examined in detail along with the reply to the show cause notice. The Adjudicating Authority found that in the facts and circumstances hereinabove mentioned that the said agreement dated 30.06.2006 is a legal document. Thus we find that the allegation in the show cause notice for disbelieving the said agreement dated 30.06.2006 is flimsy. We further find that the agreement dated 30.06.2006 has also got a binding effect on the parties to the transaction that is between the respondent and the Jefferies as it is provided in the letter dated 20.04.2006 that the parties shall enter into a formal agreement duly signed by both the parties which shall morfefully define the terms and conditions of service or the nature of the transactions as well as the respective rights and liabilities. The predominant services provided by Jefferies to the respondent is in the nature of underwriting services and not the Merchant Banking Service as classified by the Revenue - the transactions between the parties has taken place outside India and their remuneration has also not been remitted from India - the demand of service tax is bad both for mis-classification and also on the ground of territorial jurisdiction. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Classification of services provided by Jefferies to Radico.
2. Genuineness and binding nature of the agreements dated 20.04.2006 and 30.06.2006.
3. Applicability of service tax on the services provided by Jefferies.
4. Territorial jurisdiction for the demand of service tax.

Detailed Analysis:

1. Classification of Services Provided by Jefferies to Radico:
The primary issue was whether the services provided by Jefferies to Radico were "Merchant Banking Services" under "Banking and Other Financial Services" or "Underwriting Services." The Commissioner held that Jefferies was rendering underwriting services, as evidenced by the agreement dated 30.06.2006, which specified that 99% of the commission was for underwriting. The Tribunal supported this view, noting that underwriting services were the predominant service provided, thus falling under Section 65(105)(z) rather than Section 65(105)(zm) of the Finance Act.

2. Genuineness and Binding Nature of the Agreements:
The genuineness of the agreements dated 20.04.2006 and 30.06.2006 was contested. The Commissioner found both documents genuine but held that the agreement dated 30.06.2006 superseded the letter dated 20.04.2006, making it the binding document. The Tribunal affirmed this, stating that the formal agreement dated 30.06.2006, which detailed the terms and conditions, was legally binding and overrode the initial letter.

3. Applicability of Service Tax on the Services Provided by Jefferies:
The Commissioner concluded that the underwriting services provided by Jefferies did not attract service tax under the reverse charge mechanism as the services were performed outside India. The Tribunal upheld this decision, noting that the transactions and payments were conducted outside India, and no remittance was made from India. Therefore, the demand for service tax was invalid due to misclassification and lack of territorial jurisdiction.

4. Territorial Jurisdiction for the Demand of Service Tax:
The Tribunal found that the services were performed outside India and payments were made through appropriation out of issue proceeds, not remitted from India. Consequently, the demand for service tax lacked territorial jurisdiction, affirming the Commissioner's decision to drop the show cause notice.

Conclusion:
The Tribunal dismissed the appeal by the Revenue, affirming the Commissioner's order that the services provided by Jefferies were underwriting services, not merchant banking services. The demand for service tax was deemed invalid due to misclassification and lack of territorial jurisdiction. The respondent was entitled to consequential benefits.