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2019 (5) TMI 1236 - AT - Service TaxExtended period of Limitation - Refund to SEZ unit - consumption of services wholly in the SEZ - Service tax on finance charges paid for borrowing funds - demand confirmed by invoking the extended period of five years under the proviso to Section 73(1) of the Finance Act, 1994 - period of dispute is from 19 May, 2006 to 31 March, 2011 - Lending services received from International Finance Corporation and Asian Development Bank to the extent of ₹ 3,46,84,459/- - Lending services received from PROPARCO to the extent of ₹ 30,06,192/-. Lending services received from International Finance Corporation and Asian Development Bank to the extent of ₹ 3,46,84,459/- - HELD THAT - Appellant does not dispute that the ECBs have been obtained from the International Finance Corporation and the Asian Development Bank. The Appellant also does not dispute that it paid commitment charges/front end fees and certain other expenses to both the Asian Development Bank and the International Finance Corporation - What is, however, contended by the Appellant is that in view of the provisions of the Asian Development Bank, 1956 and the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 and the terms of the agreement entered into by India, the Appellant was not liable to pay any Service Tax. In regard to the applicability of Goods Service Tax on Asian Development Bank and International Finance Corporation, the Government of India issued a Circular dated 01 January, 2019 clarifying that the services provided by the International Finance Corporation and Asian Development Bank are exempt from Goods Service Tax in view of the provisions of the two Acts. This issue was examined by the Division Bench of this Tribunal in COASTAL GUJARAT POWER LTD VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI-I 2016 (12) TMI 229 - CESTAT MUMBAI both with regard to the International Finance Corporation and the Asian Development Bank where it was held that When the enactments that honour international agreements specifically immunize the operations of the service provider from taxability, a law contrary to that in the form of section 66A which legislates such operations into tax net will not prevail. The finding recorded by the Adjudicating Authority in regard to Issue that the Appellant is required to pay Service Tax on the lending services received from International Finance Corporation and Asian Development Bank has to be set aside - demand set aside. Lending services received from PROPARCO to the extent of ₹ 30,06,192/- - Notifications dated 03 March, 2009 and 20 May, 2009 - HELD THAT - The Notification dated 03 March, 2009 grants exemption to the taxable services specified in Section 65 (105) of the Finance Act, 1994 provided in relation to the authorized operations in the Special Economic Zone and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone, from the whole of the Service Tax leviable thereunder under Section 66 of the Finance Act. The proviso, however, stipulates that the exemption claimed by the developer or units or Special Economic Zone shall be provided by way of refund of Service Tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone. It would, therefore, be seen that prior to 20 May, 2009, the exemption could be claimed by way of refund of Service Tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone. However proviso (c) was amended by Notification dated 20 May, 2009. The amended proviso (c) stipulates that the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of Service Tax paid on the specified services except for services consumed wholly within the Special Economic Zone. It is, therefore, clear that on and after 20 May, 2009 the exemption from payment of Service Tax can be claimed if the services are consumed wholly within the Special Economic Zone. The show cause notice does not contain a charge that the Appellant had utilized the borrowings for any other service outside the Special Economic Zone. In fact, the show cause notice did acknowledge that the funds received by the Appellant were to be utilized for the construction and placing into operation the Kochi Terminal, but the show cause notice further stated that the funds borrowed could be used for receiving other services/goods in connection with the setting up of SEZ Unit . The show cause notice, therefore, only mentions that the funds borrowed by the Appellant could be used for other services/goods in connection with the setting up of the SEZ Unit but does not mention that the funds had actually been used by the Appellant outside the Special Economic Zone - The Adjudicating Authority, therefore, could not have drawn an inference without any evidence that the funds borrowed by the Appellant could have been used outside the Special Economic Zone. The contention of the Appellant that the borrowings were used wholly within the Special Economic Zone entitled the Appellant to examine under the Notification dated 03 March, 2009, as amended on 20 May, 2009, therefore, deserves to be accepted. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Lending services received from International Finance Corporation and Asian Development Bank. 2. Lending services received from PROPARCO. Issue-wise Analysis: ISSUE NO. (I) - Lending services received from International Finance Corporation and Asian Development Bank to the extent of ?3,46,84,459/- The Appellant argued that they were not liable to pay Service Tax on the charges paid to the International Finance Corporation and Asian Development Bank due to the immunities provided under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 and the Asian Development Bank Act, 1966. This issue was previously settled in favor of the Appellant by the Tribunal in the case of Coastal Gujarat Power Limited vs Commissioner of Service Tax, Mumbai-I, and in the Appellant's own cases (Service Tax Appeal No. 311 of 2012 and Service Tax Appeal No. 53524 of 2014). The Tribunal concluded that the services rendered by these entities are exempt from Service Tax due to their immunities from taxation as per the respective Acts. The Tribunal's decision was accepted by the Revenue, and the Supreme Court was directed to withdraw the Special Leave Petition filed by the Department. ISSUE NO. (II) - Lending services received from PROPARCO to the extent of ?30,06,192/- This issue was divided into two periods: prior to 20 May 2009 and post 20 May 2009, based on the changes in the exemption Notifications. Period prior to 20 May 2009: The Appellant had deposited the entire tax liability amounting to ?1,50,600/-, which was not appropriated by the Adjudicating Authority. The Tribunal noted that the Appellant cannot be required to pay the Service Tax twice and set aside the impugned order for this period. Period post 20 May 2009: The Notification dated 03 March 2009, as amended on 20 May 2009, provided that the exemption from Service Tax could be claimed upfront if the services were consumed wholly within the Special Economic Zone (SEZ). The Appellant argued that the funds borrowed from PROPARCO were used solely for the construction of the LNG Terminal within the SEZ at Kochi, thus qualifying for the exemption. The Adjudicating Authority's assumption that the services were not wholly consumed within the SEZ was found to be without basis. The Tribunal accepted the Appellant's contention that the borrowings were used entirely within the SEZ, thus entitling them to the exemption. Conclusion: The Tribunal set aside the impugned order dated 29 October 2016, concluding that the Appellant was not liable to pay Service Tax on the lending services received from International Finance Corporation, Asian Development Bank, and PROPARCO under the specific conditions and exemptions provided by the respective Acts and Notifications.
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