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2019 (9) TMI 122 - AT - Service TaxRCM - payment of guarantee fee towards receipt of Bank Guarantees - Banking and other Financial Services - the overseas service providers Dexia and Cordaid who had provided bank guarantee services to the appellant had provided Banking and other Financial Services - reverse charge mechanism - HELD THAT - A plain reading of Section 65(12) shows that it covers various services including providing a bank guarantee by a banking company, financial institution or any other body corporate or commercial concern. It is true that Dexia and Cordaid are not banking companies but they have provided bank guarantees through Standard Chartered bank and through Robo, Netherlands, respectively to guarantee the borrowings by the appellant. Learned counsel argued that these are corporate guarantees and we are not convinced. These are not the guarantees provided by a corporation for it s subsidiaries but are pure bank guarantees provided through banks by the service providers - the appellant received banking and financial services from abroad and is liable to discharge service tax under reverse charge mechanism. Extended period of limitation - period April 2009 to March 2012 - revenue neutrality - HELD THAT - The entire demand is under reverse charge mechanism and if the appellant had paid the service tax under reverse charge mechanism, they would have been entitled to CENVAT credit of exactly the same amounts. Therefore, the revenue neutrality in this case is evident - the entire demand is hit by limitation and therefore needs to be set aside. Appeal allowed - decided in favor of appellant.
Issues:
1. Whether the appellant is liable to pay service tax on guarantee fees paid to overseas service providers under the reverse charge mechanism. 2. Whether the demand for service tax along with interest and penalties imposed by the lower authorities is sustainable. 3. Whether the extended period of limitation can be invoked in this case. Analysis: Issue 1: Liability to pay service tax on guarantee fees under reverse charge mechanism The appellant, a Public Limited Company registered as a Non-Banking Finance Company, entered into Guarantee Fee Agreements with overseas companies for bank guarantees. The department claimed that these guarantees fall under the definition of "banking and other financial services" as per Section 65(12) of the Finance Act 1994. The Tribunal held that providing bank guarantees is covered under this definition and the appellant, as the recipient of these services, is liable to pay service tax under the reverse charge mechanism. Issue 2: Sustainability of the demand for service tax, interest, and penalties The lower authority confirmed the demand for service tax, interest, and penalties, which was upheld by the First Appellate authority. The appellant argued that the guarantees provided were not bank guarantees but corporate guarantees, and they were audited before the show-cause notice was issued. They also claimed that the demand is revenue neutral as they were entitled to CENVAT credit. However, the department contended that the demand was correctly raised as the guarantees provided were akin to bank guarantees. The Tribunal found that the guarantees provided were indeed bank guarantees and upheld the demand based on merits. Issue 3: Invocation of extended period of limitation The show-cause notice was issued invoking the extended period of limitation. The appellant argued that since the demand is revenue neutral and they were entitled to CENVAT credit, the extended period of limitation cannot be invoked. The Tribunal agreed with this argument, citing the precedent set by the Apex Court in the case of Jet Airways, where it was established that in revenue neutral cases, the extended period of limitation cannot be invoked. Therefore, the Tribunal set aside the entire demand as it was hit by limitation. In conclusion, the Tribunal ruled in favor of the appellant, setting aside the demand for service tax, interest, and penalties due to the revenue neutrality of the transactions and the inapplicability of the extended period of limitation.
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