2016 (4) TMI 628 - AT - Service Tax

Service tax liability - External commercial borrowings (ECB) are raised in the form of foreign currency convertible bonds - Amount paid by the appellant to M/s Jefferies International Ltd. for the services rendered for raising ECB for the appellant - Held that - in view of majority of decisions held in the case of Tata Steel Limited vs. Commissioner of Service Tax, Mumbai -I 2015 (11) TMI 1049 - CESTAT MUMBAI (LB) , service tax liability under reverse charge mechanism arises on the person making the payment for the services rendered by an intermediary who helps in raising the ECB. Therefore, the service tax liability arise on the appellant in respect of the amounts paid to M/s Jefferies International Ltd. for raising the ECB. Imposition of interest - Held that - Since the amount of service tax liability gets fastened, consequential interest liability also arise on the appellant. Accordingly,the appellant is liable to pay interest on such amount of service tax liability. Imposition of penalty - Held that - appellant has not paid the entire amount of the service tax liability and the interest thereof but has only paid 50% of the amount of service tax liability. It is found that the provisions of Section 80 cannot be invoked, as there being no discharge of service tax liability and interest thereof and the penalty imposed on the appellant needs to be upheld as there is no justifiable reason or cause shown for setting aside the penalties. - Decided against the appellant

Summary

Issues:
Service tax liability on amount paid to M/s Jefferies International Ltd. for raising ECB, Interest liability, Penalty imposition.

Analysis:
The appeal challenged an Order-in-Original passed by the Commissioner of Central Excise, Mumbai -V, regarding the taxability of the amount paid by the appellant to M/s Jefferies International Ltd. for services related to raising external commercial borrowings (ECB). The Revenue contended that the amount should be taxed under reverse charge mechanism for service tax under 'banking and other financial services'. The appellant disputed this tax liability, citing a Tribunal decision in the case of Tata Steel Limited vs. Commissioner of Service Tax, Mumbai -I, which settled a similar issue. The Tribunal found that the majority decision in the Tata Steel case established that service tax liability under reverse charge mechanism arises on the person making the payment for services rendered by an intermediary assisting in raising ECB. Consequently, the Tribunal held that the appellant was liable for service tax on the amount paid to M/s Jefferies International Ltd.

Regarding interest liability, the Tribunal determined that since the service tax liability was established, consequential interest liability also arose on the appellant. Therefore, the appellant was held liable to pay interest on the service tax amount.

In terms of penalty imposition, the appellant's counsel requested setting aside the penalty, arguing that the issue was being contested and had to be resolved by a majority decision. However, the Tribunal noted that the appellant had only paid 50% of the service tax liability and interest, and thus, the provisions of Section 80 could not be invoked. As the appellant failed to discharge the full tax liability and interest, the penalty imposed was upheld, as there was no justifiable reason provided to set it aside.

Ultimately, the Tribunal upheld the impugned order, rejecting the appeal and affirming the service tax liability, interest liability, and penalty imposition on the appellant.