2017 (3) TMI 180 - AT - Service Tax

Classification of taxable services - Banking and other financial services - mobilization of funds in foreign exchange by issuing convertible bonds by using the services of foreign Merchant Banks - reverse charge mechanism - Held that - underwriting commission constitutes 99%. The finding of the original authority that in composite contract the essential nature of the contract will decide the obligation of service. This principle has not been appropriately applied to the facts of the present case. When 99% of the commission is towards underwriting services, remaining 1% commission will not determine the essential nature of commission service - reliance was placed on the decision of Tribunal in the case of Jubilant Life Sciences Ltd. vs. CCE Noida 2013 (5) TMI 393 - CESTAT NEW DELHI where identical set of facts were examined and the Tribunal held that said services of underwriting cannot be taxed under Banking and Financial Services - appeal allowed - decided in favor of appellant.

Summary

Issues:
Service Tax liability on underwriting services provided by foreign merchant banks for mobilization of funds in foreign exchange.

Analysis:
The appeal challenged an order by the Commissioner of Central Excise regarding Service Tax liability on underwriting services provided by foreign merchant banks for mobilization of funds in foreign exchange. The appellants, engaged in technology-based education products and services, faced inquiries for non-payment of Service Tax during 2006-2008 related to mobilization of funds through convertible bonds issued by foreign Merchant Banks. The dispute centered around whether underwriting services, constituting 99% of the commission paid to Merchant Bankers, should be taxed under "banking and financial services." The appellants argued that underwriting services are distinct and not taxable under the said category, citing a Tribunal decision in a similar case. The Revenue contended that the underwriting services were essential merchant banking services, emphasizing the lack of evidence of Service Tax payment during the proceedings. The Tribunal examined the contract terms and found that the underwriting commission dominated the commission structure, leading to a conclusion that the underwriting services were distinct from banking and financial services. The Tribunal relied on a previous decision to support this finding, highlighting the unique nature of underwriting services and the separate remuneration allocated for them. The Tribunal ultimately ruled in favor of the appellants, setting aside the impugned order and allowing the appeal. The decision was based on the distinct nature of underwriting services and their non-taxable status under the relevant provisions of the Finance Act.

This comprehensive analysis of the judgment delves into the core issue of Service Tax liability on underwriting services provided by foreign merchant banks for mobilization of funds in foreign exchange. The arguments presented by both parties, the examination of the contract terms, and the reliance on a previous Tribunal decision form the basis for the Tribunal's ruling in favor of the appellants. The detailed reasoning provided by the Tribunal showcases a thorough analysis of the legal and factual aspects surrounding the dispute, leading to the conclusion that underwriting services are distinct from banking and financial services and hence not subject to Service Tax under the relevant provisions of the Finance Act.