2012 (11) TMI 211 - AT - Service Tax

Waiver of pre-deposit and stay of recovery of duty and penalty - Following the decision of Court in case of JUBILANT LIFE SCIENCES LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NOIDA 011 (11) TMI 421 - CESTAT, NEW DELHI Held that - Services of lead managers to the issue and underwritings and other banking & financial services had been received by the Appellant from offshore services provider - and, therefore, the appellants being service recipients are liable to pay service tax in respect of the same - The services provided by the underwriters is taxable under Section 65(105)(z) read with Section 65(116) & 65(117) of the Finance Act, 1994 as taxable services of Underwriter s Services and Merchant Banker Services - applicant is therefore directed to deposit an amount of Rs. 50,00,000/- (Rupees fifty lakhs only) within a period of eight weeks and report compliance later on. On compliance there shall be stay of recovery of the balance amount of service tax, interest and penalty till disposal of the appeal.

Summary

Issues:
Taxability of service as merchant banking service or underwriter service.

Analysis:
The case involved an application by a bank seeking waiver of pre-deposit and stay of recovery of service tax and penalties imposed by the Commissioner of Service Tax, Mumbai. The dispute arose from the taxability of services provided by non-resident service providers for facilitating the issue of Global Depository Shares (GDS). The Revenue contended that the services fell under "Merchant Banking Services" and were taxable, while the bank argued that the services were underwriter services performed outside India and not liable for service tax. The bank relied on SEBI regulations to support their classification of services as underwriter services, distinct from merchant banking services.

The Revenue argued that the services provided by non-resident Joint Lead Managers constituted issue management services falling under "Merchant Banking Services." They highlighted the reverse charge mechanism under Section 66A of the Finance Act, 1994, to levy service tax on the bank for receiving the services. The Revenue also referenced a Tribunal decision in a similar case where pre-deposit was ordered.

After considering the arguments, the Tribunal found that the services provided by non-residents were issue management related services, which are classified under banking and other financial services of the Finance Act as per SEBI rules. The Tribunal noted that the bank had appointed non-residents as Joint Lead Managers for the GDR issue, and the commission deducted by them before transferring net proceeds back to the bank indicated issue management services. The Tribunal also cited a previous case where pre-deposit was ordered, indicating a lack of a strong prima facie case by the bank. Consequently, the Tribunal directed the bank to deposit a specified amount within a set period and granted a stay of recovery for the remaining amount pending appeal disposal.