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TMI Blog2013 (9) TMI 467X X X X Extracts X X X X X X X X Extracts X X X X ..... Bonds") for a total value of US $ 150 millions with the requisite permission from the Reserve Bank of India(RBI). M/s. Silverdale Services Ltd. (Silverdale, for short), a company registered in the United Kingdom, was appointed as 'Lead Manager' for the fund-raising by REL. Silverdale was authorized and regulated by the Financial Services Authority, UK to advise corporate entities on raising equity and debt finance, mergers & acquisitions and corporate restructuring. As per the Letter of Engagement dated 6-12-2006 pertaining to the appointment of Silverdale as Lead Manager by REL in connection with the issuance of FCC Bonds, Silverdale was required to extend to REL the following services : (a) Provide advice on the financial aspects (pricing, structuring, terms & conditions, issue amount and timing considerations) of the Transaction. (b) Assist in the listing of the securities on a global stock exchange, such as Singapore or Luxembourg. (c) Assistance in scheduling key activities for an overseas issue and identification of key agencies. Silverdale will assist the Company in identifying all key agencies required for the transaction including legal counsels, listing agent, trustee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. In a show-cause notice dated 3-12-2007 issued to REL after completion of investigations by the Directorate General of Central Excise Intelligence(DGCEI), an amount of Rs. 2,44,83,060/- was demanded towards service tax and education cess under the head 'Banking and Other Financial Services'(BOFS) in the reverse charge mechanism in terms of Rule 3 of the Taxation of Services (Provided from Outside India) Rules, 2006 read with Section 66A of the Finance Act, 1994. This demand was based on the alleged facts that REL had received the taxable service in India from Silverdale located abroad, that REL was liable to pay service tax in terms of the aforesaid provisions but did not pay the tax as per the relevant provisions, that they suppressed the aforesaid transactions with Silverdale with intent to evade payment of service tax etc. The show-cause notice also proposed penalties under Sections 76, 77 and 78 of the Finance Act, 1994, apart from demand of interest on tax under Section 75 of the Act. 4. The demands were contested by REL on numerous grounds in their reply to the show-cause notice. The main ground raised by them was that Silverdale had provided the services entirely outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Taxation of Services (Provided from Outside India) Rules, 2006 is that a taxable service must be received in India. This requirement was not satisfied in the present case. (ii) Silverdale was located abroad and did not have any office in India and hence could not have rendered any service in India. There is no evidence of Silverdale's services having been received in India by REL. (iii) Under the scheme of issue of FCC Bonds, the Bonds were issued by the Indian company to be subscribed by foreign entities only and the principal and interest were expressed in foreign currency. Indian entities and individuals were banned from participating in the transaction. The role of Silverdale as Lead Manager in connection with the raising of funds from the foreign subscribers did not extend to any part of the territory of India. Therefore, it cannot be held that the services provided by Silverdale abroad were received in India. (iv) No payment was made from India by REL as consideration for Silverdale's services. Admittedly, Silverdale was deducting their fee from the proceeds of issue of FCC Bonds and crediting the balance amount in the Escrow Account of REL maintained in a London bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided by Silverdale to REL under the agreement between them squarely fell within the ambit of BOFS defined under Section 65(12) of the Finance Act, 1994. As Silverdale did not have any office in India, REL was liable to pay service tax on the fee paid to Silverdale, in terms of Section 66A of the Act, as the recipient of the services in India. (ii) The Managing Director of REL admitted that an amount of US $ 4.5 millions had been deducted by Silverdale towards commission from the proceeds of issue of FCC Bonds, as consideration for the services rendered by them. In terms of the agreement between Silverdale and REL, such deduction was equivalent to payment of Silverdale's fee by REL and therefore the contention raised by the assessee that they did not make any payment of money to Silverdale cannot be sustained. (iii) In the case of Indian National Shipowners' Association v. UOI [2009 (13) S.T.R. 235 (Bom.)], the issue considered by the Hon'ble High Court was whether service tax could be levied on certain services received by Indian companies outside the territorial waters of India and the same was held in favour of the Revenue for periods post-18-4-2006. The Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment permanent address or usual place of residence, in India. such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the providing of this Chapter shall apply : Provided that where the recipient of the service is an individual and such service received by him is otherwise than for the purpose of use in any business or commerce, the provisions of this sub-section shall not apply : Provided further that where the provider of the service has his business establishment both in that country and elsewhere, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. (2) Where a person is carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to business or commerce." [underlining added] 11. Assuming that Silverdale's services are covered by the definition of BOFS, we have to consider the basic question which was in the focus of the rival submissions made by the learned counsel and the learned Deputy Commissioner (AR). This is the question whether the services provided by Silverdale were received by REL in India. It has been argued on behalf of the assessee, on the strength of a circular of the C.B.E. & C. as well as certain decisions of the Hon'ble Supreme Court, that there can be no levy of service tax on REL under Section 66A of the Act unless the service provided by Silverdale abroad is shown to have been received in India by REL. It has been argued that those services were totally performed abroad and not received in India and therefore the assessee is not liable to pay service tax on those services. Section 66A of the Act does not explicitly require receipt of service in India; it rather refers to receipt of service "by a person who has his place of business, fixed establishment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 13. Both sides have relied on case law on the substantive issue. The learned counsel has relied on the Hon'ble Supreme Court's decision in All India Federation of Tax Practitioners case (supra), wherein it was held by their lordships that service tax was a destination-based consumption tax and would, logically, be leviable only on services provided within the country. The Hon'ble Supreme Court was not dealing with Section 66A of the Finance Act, 1994. Moreover, considering the fiction created in Section 66A to the effect that any service specified in clause (105) of Section 65, provided by a person located outside India, and received by a person located in India shall, for the purposes of Section 66A, be a taxable service and also shall be deemed to have been provided in India by the recipient, we must hold that the cited case law is not relevant. The learned Deputy Commissioner (AR) has relied on the Hon'ble High Court's decision in Indian National Shipowners' Association case (supra). But, in that case, the question whether the service provided by a person located outside India should be received in India by a person located in India for attracting the levy under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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