2020 (7) TMI 320 - AT - Service Tax

Extended period of limitation - demand of service tax - banking and other financial services or not - appellant availed services for placing Foreign Currency Convertible Bonds (FCCB) in the International Capital Market to raise capital - reverse charge mechansim - Section 66A of the Finance Act, 1994 - HELD THAT - It is not in dispute that the appellant availed the services from foreign service providers in relation to floating of FCCBs in those countries The nature of services referred by the service providers falls squarely within the definition of merchant banker in terms of the SEBI (MBR 1990).Therefore, in terms of Section 65(12)(a)(iii) the services referred squarely fall under the definition of bank and other financial services. As the recipient of these services, the appellant was required to pay service tax under reverse charge mechanism in terms of Section 66A of the Finance Act, 1994 r/w Rule 2 of Service Tax Rules, 1994 - It is not in dispute that the appellant has not paid the service tax and had not disclosed these facts to the Revenue at any stage. Investigation by the officers revealed these facts and on being pointed out the appellant paid the entire amount of service tax along with some interest - decided in favor of Revenue. Time Limitation - Penalty - HELD THAT - There are no evidence in the particular facts and circumstances of this case that the appellant tried to actively suppress or misstate facts. It is true that they have not paid service tax which they were required to. It is equally true had they paid the service tax they could have immediately taken the CENVAT credit of the entire amount so paid and utilized it. By delaying the payment, the appellant would only be liable to pay interest which also cannot be claimed as CENVAT credit. Thus, by not paying Service Tax, the appellant would have lost something but gained nothing - there is no ground to invoke extended period of limitation. As the entire period of demand is beyond the normal period the same needs to be set aside along with the interest - penalty u/s 78 also set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Taxability of services provided by foreign companies under reverse charge mechanism.
2. Applicability of service tax on services related to Foreign Currency Convertible Bonds (FCCBs).
3. Contesting demand on merits and limitation.
4. Interpretation of legal provisions regarding service tax.
5. Invocation of extended period of limitation and imposition of penalties.

Analysis:

Issue 1: Taxability of services provided by foreign companies under reverse charge mechanism
The appellant availed services from foreign companies for placing FCCBs in international markets. The contention was whether these services fall under the category of "banking and other financial services" and are taxable under the reverse charge mechanism. The appellant argued that the services were consumed outside India and did not qualify as banking or financial services. However, the Revenue argued that the services provided by foreign companies fell under the definition of merchant banking services, making them taxable under the reverse charge mechanism.

Issue 2: Applicability of service tax on services related to FCCBs
The appellant contested the demand on the grounds that the services availed were not related to banking or financial services, thus not attracting service tax. The Revenue argued that the services provided by foreign companies were directly related to the issuance of FCCBs, falling under the category of banking and financial services, making them taxable.

Issue 3: Contesting demand on merits and limitation
The appellant contested the demand on both merits and limitation. They argued that even if liable for service tax, it would be available as CENVAT credit for their final products, ensuring revenue neutrality. The appellant also claimed that their bonafide belief in not paying service tax negated any allegation of suppression of facts.

Issue 4: Interpretation of legal provisions regarding service tax
The case involved an interpretation of legal provisions related to service tax, specifically determining whether the services provided by foreign companies for placing FCCBs constituted banking or financial services, thus making them taxable under the reverse charge mechanism.

Issue 5: Invocation of extended period of limitation and imposition of penalties
The Revenue invoked the extended period of limitation alleging suppression of facts by the appellant. However, the Tribunal found no evidence of active suppression or intention to evade payment of service tax. The Tribunal held that the appellant's conduct did not indicate any malafide intent, leading to the setting aside of the extended period of limitation and penalties imposed under Section 78 of the Finance Act, 1994.

In conclusion, the Tribunal allowed the appeal, setting aside the impugned order and providing consequential relief to the appellant based on the findings related to taxability, limitation, and penalties.