2022 (2) TMI 92 - AT - Service Tax

Short payment of service tax - Banking and other Financial Services - Business Auxiliary Services - Erection, Commissioning or installation services - Banking and other financial services imported - Reverse Charge Mechanism. Banking and other financial services - Business Auxiliary services - appellant have received amount for financing charges in the nature of commission - HELD THAT - If the said amount is actually by way of subsidy, the same will not be exigible to service tax. However, for verification of this fact that the amount of subsidy has been wrongly booked under the Commission Income - this issue is remanded to the Original Adjudicating Authority with directions to verify this claim, and thereafter, to pass a reasoned order in accordance with law. Erection, commissioning and installation services - HELD THAT - The said amount has been booked by Revenue, from the Director s report for the year 2006-2007, being annexed to the audited accounts for the year - March ending 2007, wherein the Board of Directors have stated that the appellant have received a contract/ project for laying of transmission line worth ₹ 800 million (₹ 80 Crores) - this appellant was only a consortium partner for the sake of giving financial backing to M/s. Voltech Projects Pvt. Ltd., which is the leading party , and as per declarations in the MOU and the consortium agreement , the role of the appellant was limited to give financial backing to the Project, and all the liability of the execution of the project and realisation of Profit Loss arising thereunder, was on the lead partner (Voltech Projects Pvt. Ltd.) - this demand is set aside and the ground is allowed in favour of the appellant/ assessee. Banking and other financial services - Reverse Charge Mechanism - confirmation charges - SWIFT charges - HELD THAT - The appellant, being initiator of letter of credit, is the receiver of the benefit on such opening of the letter of credit and accordingly, they are liable to pay the confirmation charges and accordingly, they have received the banking services from the foreign bank, through the bank in India. Accordingly, we find that the appellant is required to pay service tax on such confirmation charges under Reverse Charge Mechanism - So far the SWIFT charges are concerned, the privity of contract is between the Indian Bank and the SWIFT society. Thus, the receiver of the services is the Indian Bank, and not the appellant/assessee. The appellant/assessee only have reimbursed such SWIFT charges to the Indian bank. Accordingly, the appellant is not the receiver of SWIFT services, hence not liable to pay service tax on the same - this issue is remanded to the ld. Commissioner for re-calculation of the tax liability (on confirmation charges). Business Auxiliary Services - Reverse Charge Mechanism - HELD THAT - Such service, admittedly, has been rendered by the service provider located outside India and have been received by the appellant in India. The appellant have been involved in this business being from the year 2006-2007 to 2010-2011. The said taxability (under RCM) was highly debatable and was under litigation - The issue was finally decided by the ruling of the Bombay High Court in the case of INDIAN NATIONAL SHIPOWNERS ASSOCIATION VERSUS UNION OF INDIA 2008 (12) TMI 41 - BOMBAY HIGH COURT , wherein it was held (in the writ petition) that an assessee is required to pay service tax under Reverse Charge Mechanism for the specified services, w.e.f. 18.04.2006 only, when Section 66 A was introduced in the Finance Act. Further, the appellant/assesse was entitled to cenvat credit on payment of such service tax under Reverse Charge Mechanism. Thus, there is no incentive for them to evade payment of tax. Accordingly, this service tax liability is upheld, but at the same time, the penalty is set aside - in the case of banking and financial charges , as the cenvat credit is available for the payment of service tax, under Reverse Charge Mechanism, the penalty imposed is set aside. Appeal allowed in part and part matter on remand.

Summary

Issues:
1. Whether the appellant has short paid service tax.

Analysis:
The appellant, a Central Government PSU engaged in trading activities, was audited for the period 2006-07 to 2010-11, revealing a short payment of service tax amounting to ?7,53,49,212 under various heads. The appellant contended that certain amounts were mistakenly booked, such as subsidies received being classified as commission income. The Tribunal remanded this issue for verification, emphasizing that subsidies are not exigible to service tax. Regarding another disputed amount for erection, commissioning, and installation services, it was found that the appellant was a consortium partner providing financial backing, with the lead partner assuming liability. As the appellant received a share of profit, this demand was set aside.

The next issue involved a demand of ?52,21,830 for banking and financial services under the Reverse Charge Mechanism. The appellant's explanation of the transaction involving letter of credit operations was considered, and it was determined that the confirmation charges were liable for service tax under Reverse Charge Mechanism. However, the SWIFT charges were deemed not applicable to the appellant. The Tribunal directed a re-calculation of tax liability on confirmation charges. Additionally, a demand of ?23,41,210 for Business Auxiliary Services under RCM was upheld based on legal precedents, but the penalty was set aside due to the availability of cenvat credit.

In conclusion, the Tribunal partially allowed the appeal, remanding certain issues for further verification. All penalties were set aside, and the appellant was granted consequential benefits as per the law. The appeal was allowed for statistical purposes.