2021 (3) TMI 1345 - AT - Service Tax

Levy of service tax - Banking and other Financial Services or not - External Commercial Borrowings obtained from Germany - reverse charge mechanism - revenue neutrality - extended period of limitation - HELD THAT - Appellant as manufacturer of dutiable goods who has obtained Loans in form of External Commercial Borrowing ECB from Lender Banks of Federal Republic of Germany, as per agreements on consideration of Management Fees, Commitment Fees and repayment of interest for ECB received by them. Adjudicating authority has confirmed Service Tax demand of ₹ 2,96,70,103/- with interest and equal penalty imposed for Banking and other Financial Services under RCM - the levy of Service Tax was on Taxable Services provided or to be provided at the material time and it was being collected from Service provider u/s 68(1) of Finance Act 1994 by Forward Charge and it was collected from Service Recipient under Reverse Charge u/s 66A of Finance Act 1994 read with Section 68(2) of Finance Act 1994 and Notification No. 30/2012-ST dated 20.06.2012 as amended and Rule 2(1)(d)(i)(G) of the Service Tax Rules 1994. Appellant has received services, i.e. Banking and other Financial Services from Lender Banks in Federal Republic of Germany. For purpose of Service Tax levy, charges for providing such actual Taxable services recovered by Lender Banks from Assessee are gross amount charged by the Service Provider for such service provided or to be provided. Service Tax is levied on transactions of Taxable Services between Service Providers and Service Recipients under forward charge or reverse charges, as applicable in appropriate cases. Hence, it is essential first to ascertain who is the Service Provider and who is the Service recipient before considering one s liabilities on the Taxable Services in question. In the present case, we find that Service Tax is confirmed on the Insurance premium amount paid to HERMES by the lender Banks in Germany for providing Insurance cover to the lender Banks in Germany, which lender Banks have recovered from Appellant. However, Appellant claims it not liable to Service Tax as Appellant has not received Services provided by HERMES and service receiver are Lender Banks in Germany and hence Service Tax is not attracted under Finance Act 1994 - in the facts of this case, if Appellant as a Borrower defaults in making repayment of the Loan Amount to Lender Banks, Insurance cover provided by HERMES to Lender Banks would operate in favour of Lender Banks. These facts are available on record in loan agreements. The appellant is liable to pay Service Tax under RCM or not in respect of the amount paid by Appellant to Lender Banks towards all HERMES premium charges during the period in question, is the question to be decided on merits, in the facts of this case. Extended period of limitation - suppression of facts or not - HELD THAT - There is nothing on record to show that any suppression of facts or illful misstatement were made on the part of the Appellant who has filed periodical ST-3 return regularly and disclosed all necessary details as required. In this circumstances charge of suppression or willful misstatement with intention to evade Service Tax can not be alleged against Appellant. For this reason no mala fide can be attributed to appellant. Hence longer period of demand can not be invoked. No mala fide can be alleged for such issue of interpretation and hence extended period of time limitation is not invocable in the facts of this case. Reverse Charge Mechanism - revenue neutrality - HELD THAT - The Order-in- Original has rejected submission on Revenue Neutrality with illogical, incorrect and unjustified observation that if argument of Revenue Neutrality as a permissible defense is accepted, entire scheme of payment of taxes on reverse charge basis will become irrelevant. However, the facts of payment of substantial amount of Excise duty from PLA during the period in question can not be ignored, while considering Revenue Neutrality. Revenue has not adduced any evidence to show that Appellant had not paid disputed Service Tax with intention to evade payment of Service Tax, when it was available as credit to Appellant themselves under RCM. There are also force in the submissions of Appellant on both these points. The demand of entire Service Tax is not sustainable on time limitation. When the Service Tax demand is not sustained, consequential interest and penalty imposed does not survive - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Liability to pay Service Tax under Reverse Charge Mechanism (RCM) for External Commercial Borrowings (ECB) from Germany.
2. Applicability of Service Tax on Hermes Premium and other related charges.
3. Invocation of extended period for issuing Show Cause Notice (SCN).
4. Revenue Neutrality and its impact on Service Tax liability.
5. Validity of interest and penalty imposed.

Issue-wise Detailed Analysis:

1. Liability to pay Service Tax under Reverse Charge Mechanism (RCM) for External Commercial Borrowings (ECB) from Germany:
The core issue is whether the appellant is liable to pay Service Tax under RCM for ECB obtained from Germany. The demand was based on the appellant's failure to discharge Service Tax on Hermes Premium, ECA Premium, and Processing Fees paid to lender banks in Germany. The adjudicating authority confirmed the demand of ?2,96,70,103/- with interest and equal penalty under RCM for "Banking and other Financial Services" as per Section 68(2) of the Finance Act, 1994, read with Notification No. 30/2012-ST dated 20.06.2012.

2. Applicability of Service Tax on Hermes Premium and other related charges:
The appellant argued that Hermes Premium is for insurance cover provided to German lender banks and not directly related to them. They contended that the transaction occurs between the Federal Republic of Germany and the lender banks, not involving the appellant directly. The appellant claimed that such transactions are outside the jurisdiction of Indian Service Tax laws as they occur in a foreign territory. They also argued that fees collected by public authorities for statutory functions do not attract Service Tax, and the amount paid to Hermes was considered as part of the loan, thus non-taxable.

3. Invocation of extended period for issuing Show Cause Notice (SCN):
The appellant challenged the invocation of the extended period for issuing the SCN, arguing that the demand for Service Tax from FY 2015-16 to 2017-18 (up to June 2017) was time-barred. They submitted that the extended period of five years could not be invoked without proving fraud, collusion, willful misstatement, or suppression of facts. The appellant demonstrated that they had disclosed all relevant details during audits and inquiries, forming a bona fide belief that Service Tax was not applicable to Hermes Premium. The Tribunal agreed, finding no evidence of suppression or willful misstatement by the appellant, thus ruling the demand as time-barred.

4. Revenue Neutrality and its impact on Service Tax liability:
The appellant argued that the Service Tax, if paid, would have been available as Cenvat Credit, making the situation revenue neutral. They cited several legal precedents supporting the claim that in a revenue-neutral situation, there could be no intent to evade tax. The Tribunal found merit in this argument, noting that the appellant had paid substantial excise duty from their PLA during the relevant period, reinforcing the revenue-neutrality claim.

5. Validity of interest and penalty imposed:
Since the primary demand for Service Tax was not sustained due to time limitation and revenue neutrality, the consequential interest and penalty imposed were also deemed unsustainable. The Tribunal set aside the Order-in-Original dated 02-08-2021, allowing the appeal with consequential reliefs.

Conclusion:
The Tribunal concluded that the demand for Service Tax was not sustainable on the grounds of time limitation and revenue neutrality. The Order-in-Original was set aside, and the appeal was allowed with consequential reliefs.