2017 (3) TMI 943 - AT - Service Tax

Import of services - reverse charge - advisory fee - services received while availing commercial loans and buyer s credit in the form of external commercial borrowing from foreign banks - reverse charge mechanism - Held that - It is clear from the agreement that ABN Singapore and ABN India are branches of ABN Amro Bank, NV, a registered company located in Amsterdam in Netherland. As the lender is having a representative office in India by way of another branch entity of the bank, no service tax liability arises on the appellant in terms of Section 66A - reliance was placed in the case of Nagarjuna Oil Corporation Ltd. vs. CCE, Puducherry 2016 (8) TMI 41 - CESTAT CHENNAI , where the Tribunal examined the scope of Explanation 1 under Section 66A and held that if a foreign entity is having a business establishment in India, the service rendered through such establishment cannot be taxed under reverse charge in terms of Section 66A. Tax liability - amount paid as insurance premium by the appellant to TD Bank as part of loan amount - Held that - It is clear that the insurance premium amount is paid by TD Bank. The appellant is paying the full amount, including the said insurance amount as a term loan to TD Bank. In such arrangement, we find no consideration is paid by the appellant to be considered as taxable value, under reverse charge basis, in terms of Section 66A - reliance was placed in the case of Kingfisher Airlines P. Ltd. vs. CST, Mumbai 2014 (11) TMI 503 - CESTAT MUMBAI , where in similar situation the Tribunal held that borrower of money in India is neither a service provider nor service recipient in connection with insurance taken by the lender. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Service tax liability on advisory fee paid to a bank.
2. Service tax liability on insurance premium paid as part of a loan.

Issue 1: Service tax liability on advisory fee paid to a bank:
The appeal concerned the service tax liability of the appellant in connection with services received while availing commercial loans and buyer's credit from foreign banks. The dispute revolved around the service tax liability of ?2,74,880 demanded for an advisory fee paid to a bank. The Original Authority confirmed a service tax demand of ?31,33,219, which included penalties. The appellant contested the liability, arguing that as the transaction was carried out through the Indian branch of the bank, there was no liability to pay service tax. The appellant also contended that the bank had already charged service tax on the advisory fee. The Tribunal analyzed the agreement and held that as the lender had a representative office in India, no service tax liability arose on the appellant. The Tribunal referred to a previous decision to support this conclusion.

Issue 2: Service tax liability on insurance premium paid as part of a loan:
The second issue involved the appellant's liability concerning the insurance premium paid as part of a loan. The appellant argued that there was no legal basis for demanding service tax on the amount paid as part of the loan to the bank for insurance services availed by the bank. The Tribunal examined the agreement and noted that the insurance policy was in favor of the bank only. It concluded that the appellant, as the borrower, was neither a service provider nor a service recipient in connection with the insurance taken by the lender. Citing a previous Tribunal decision, the Tribunal held that there was no consideration paid by the appellant to be considered as taxable value under the reverse charge mechanism.

The Tribunal found that the impugned order was not legally sustainable regarding the service tax liabilities confirmed against the appellant. It set aside the portion of the order related to the service tax liabilities and penalties imposed. The Tribunal noted that the appellant had immediately discharged the service tax liability wherever applicable and only contested specific issues. Consequently, the penalties imposed on the appellant were deemed unjustifiable and were set aside. The appeal was allowed partly based on the above analysis.