2023 (9) TMI 235 - AT - Service Tax

Levy of service tax - Payment of actual consideration including service charges in the form of Agency fees/Arrangement fees/Legal charges/Upfront charges/Commitment charges etc. in Foreign Currency, for availing External Commercial Borrowing (ECB) - legal charges - penalties - reverse charge mechanism. Payment of actual consideration including service charges in the form of Agency fees/Arrangement fees/Legal charges/Upfront charges/Commitment charges etc. in Foreign Currency, for availing External Commercial Borrowing (ECB) - HELD THAT - It is a fact on record that prior to 18.04.2006 the service tax was not payable by the appellant for the loan obtained by them from foreign bankers, who are not having their registered office in India under Reverse Charge Mechanism as held by the Hon ble Bombay High Court in the case of Indian National Shipowners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT , therefore, the tax liability of Rs.19,09,550/- was not sustainable against the appellant. Accordingly, the same is set aside. Legal charges - HELD THAT - The taxability on legal charges came into effect form 01.09.2009 and the said legal charges has been paid by the appellant prior to that. In that circumstances, no service tax is payable by the appellant for legal services received under Reverse Charge Mechanism. With regard to rest of the demand, the appellant has admitted their liable and paid immediately when it is pointed out to the appellant during the course of investigation. Penalties - HELD THAT - As appellant has paid the disputed amount of service tax immediately on pointing out by the authorities, therefore, giving them the benefit of section 80 of the Finance Act, 1994, no penalty is imposable on the appellant. Therefore, penalties imposed on the appellant are also set aside. Appeal allowed.

Summary

Issues:
The appeal involves a dispute over the demand for service tax and penalty imposed on the Appellant.

Facts:
The Appellant obtained loans from abroad through External Commercial Borrowing (ECB) for capital expenditure. The Directorate General of Central Excise Intelligence conducted an investigation and found that the Appellant obtained multiple ECBs from non-resident Financial Institutions. The Appellant paid service charges in Foreign Currency to these institutions. The investigation led to a show cause notice demanding service tax for a specific loan amount, which was adjudicated with a penalty imposed.

Legal Arguments:
The Appellant argued that based on a decision of the Bombay High Court, no service tax was payable by the recipient of services from abroad before a certain date. They also contended that legal charges were paid before the introduction of services under the service tax net, thus no tax was payable for those charges. The Appellant admitted and paid the service tax immediately upon notification by the department, and they believed there was an ongoing issue regarding taxability.

Decision:
The Tribunal noted that prior to a specific date, service tax was not payable by the Appellant for loans obtained from foreign bankers. Therefore, a portion of the tax liability was set aside. Regarding legal charges, as they were paid before a certain date, no service tax was deemed payable. The Appellant had admitted and paid the remaining tax upon notification. As the disputed amount was paid promptly, no penalty was imposed on the Appellant. Thus, the appeal was allowed, and penalties were set aside.