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TMI Blog2014 (10) TMI 201X X X X Extracts X X X X X X X X Extracts X X X X ..... o be between the body corporate (whose securities are offered for sale) and the underwriter. Thus in brief, underwriting service as per Finance Act, 1994, would imply an agreement to subscribe the unsubscribed securities which were offered for sale to public or existing shareholders. Appellant has issued and sold the GDRs to Joint Lead Manager who in turn would resell, all or a portion of the offered GDRs by making an offering to the subsequent purchasers. This is not what is envisaged in "underwriting" as defined under Finance Act, 1994. What is envisaged is to make offer to public or existing shareholders, whatever is not subscribed that has to be purchased/subscribed in terms of an agreement by a person i.e. underwriter. Thus the 'Joint Lead Manager' who purchased GDR's cannot be considered as underwriter providing underwriting service. Even the agreement dated 23.07.2007 is titled as "Purchase Agreement". We therefore hold that services provided by M/s Citi and M/s Goldman Sach Ltd. are not underwriting service within the meaning of Finance Act, 1994. Since the issue whether the service provided by the service provider can be considered as underwriting service within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providers for facilitating issue of the said GDRs and the services provided by such non-resident was that of Joint Book Runners and Joint Lead Managers with certain terms and conditions, under an agreement dated 08.06.2007. Service Tax is being demanded under reverse charge mechanism under Section 66A of the Finance Act, 1994. Revenue is demanding the Service Tax as Merchant Banking Services listed at (iii) under the category of Banking and other Financial Services under Section 65 (12) of the Finance Act, 1994 while the appellant claims the service to be underwriting service under Section 65 (105) (z) and 65 (117) of the Finance Act, 1994. 2. Learned advocate for the appellant submitted that two issues are involved in this cess viz. i) Whether or not Service Tax, under reverse charge mechanism, is payable on underwriting services taxable under Section 65 (105) (z) rendered fully outside India by Joint Lead Managers and Joint Bookrunners, M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International, as claimed by the Appellants, based on Hon'ble Tribunal judgement in Jubiliant Life Science Ltd. [2013 (29) STR (T)], wherein it has been held that even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also J.P. Morgan were working as lead manager and also were carrying out underwriting services and entire FCCBs were purchased by them and subsequently sold to general public. x) That in the present case, M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International also had purchased entire GDR and subsequently sold to general public. xi) That the said Hon'ble CESTAT judgement and order in the case of Jubiliant Life Sciences Ltd. has been accepted by CBEC and CBEC decided not file Civil Appeal on merits. xii) That in spite of purchase of GDRs by underwriters, the essential character of underwriting activity does not get vitiated based on the following: (a) Perfect Circle Victor Ltd. - 1992 (60) ELT 676 (SC) (b) CCE Vs. D.C.M. Textiles - 2006 (193) ELT 129 (SC) (c) Apar Industries - 2009 (92) RLT 968 (T) (d) Bhopal Sugars Inds. - (1997) 3 SCC 147 xiii) That Hon'ble Supreme Court judgement in Naini Gopal Lahiri And Ors. [1965 35 Comp Cas 30 SC] has held in para 13, it has been held that .......... The underwriting agreement being a contract that the underwriter will either himself purchase or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities from the issuer and resells them as principal. In this type of underwriting, securities that cannot be sold to the public are owned by the underwriter, and the issuer is paid for those securities as well as the others. Standby underwriting - Underwriting in which the underwriter agrees, for a fee, to buy from the issuer any unsold shares remaining other the public offering (xviii) Thus underwriters, in other countries, have to purchase and resell. This is because of the possibility that the potential investors may not have heard the name of the Indian company and would, therefore, hesitate to invest in its GDRs. It is only because of the well-know reputation of M/s. Citigroup Global Markets Ltd., M/s. Goldman Sachs International etc. the investors are attracted for subscribing the GDRs. In view of the above, legal and factual position purchase and resale of GDRs by the underwriter is a well known phenomenon. (xix) Ld. Commissioner holds in para 6.3 that the requirement of registration under SEBI would apply only to merchant bankers functioning from India. The very same findings would support the Appellants claim that meaning assigned to 'underwrit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 1995 (78) ELT 401 (SC)] (d) Tamil Nadu Housing Board Vs. [1994 (74) ELT 9 (SC)] (e) Padmini Products Vs. [1989 (43) ELT 195 (SC)] 5. Learned A.R. on the other hand argued that in this case Joint Lead Manager had purchased all the GDRs on 23.07.2003 from the appellant and thereafter would have sold to the subsequent purchasers. This is not what is expected of an underwriter. An underwriter, as per the Finance Act, 1994 read with SEBI (Underwriter) Rules, 1993, is expected to subscribe to unsubscribed portion. Even the agreement dated 23.07.2007 is Purchase Agreement and not an Agreement to underwrite. Ld. A.R. further argued that we are not concerned with the scope of underwriting under US or UK Act or underwriting in various dictionaries, our law is specific and very clear on this point. Learned A.R. also argued that issue for consideration in the case of Jubiliant Life Science Ltd. (supra) were different and this issue was not before the Tribunal. Learned A.R. further argued that extended period of limitation is invokable as appellant suppressed the details from the department/assessing officer. If appellant had any doubt, they should have approached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for purposes of Finance Act, 1994, Underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them. Thus in our view first and foremost condition is that securities are offered to the public or existing shareholders. The next requirement is an agreement to subscribe to the securities when the public or existing shareholders do not subscribe to the securities offered to them. This agreement is to be between the body corporate (whose securities are offered for sale) and the underwriter. Thus in brief, underwriting service as per Finance Act, 1994, would imply an agreement to subscribe the unsubscribed securities which were offered for sale to public or existing shareholders. 8. In order to examine the appellants contention we may look at the agreements viz dated 8 th June, 2007 and 23 rd July, 2007. Agreement dated 8 th June, 2007 is in fact is in form of letter from M/s Citigroup Global Markets Ltd. to the appellant. The relevant portion of letter dated 8 th June, 2007 are as under:- The purpose of this let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, use or similar taxes (including additions to such taxes, if any). The matter relating to underwriting the offer by the Joint Lead Managers would be subject, among other things, to (i) of an offering documents that contains all material information in the context of the offering, (ii) market conditions which are satisfactory to the Company Joint Lead Managers at the time of launch, (iii) receipt of each Joint Lead Managers final internal approvals, (iv) no material adverse change in the Company's business, financial condition or prospects, (v) mutually acceptable offering size, structure and pricing, and (vi) execution and delivery of an underwriting or purchase agreement in a form satisfactory to the Company and Joint Lead Managers to include customary representations and warranties, conditions to closing, termination provisions and indemnification. The company will have no obligation to sell, and the Joint Lead Managers will have no obligation to buy, any securities, except upon the signing by all parties of such underwriting or purchase agreements. Citi and Goldman Sachs are not experts on, and do not render opinions regarding, legal, accounting, and regulatory or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally and not jointly, agrees to purchase from the company, at a price per GDR of US$ 15.4306 (the Purchase Price ) the number of Offered GDRs set forth in Schedule A opposite the name of such Joint Lead Managers, plus any additional number of Offered GDRs which such Joint Lead Managers may become obligated to purchase pursuant to the provisions of Section 11 hereof, subject in each case, to such adjustments among the Joint Lead Managers as the Joint Lead Managers in their sole direction shall make to eliminate any sales or purchases of fractional securities. (b) Payment. Payment for the Offered GDRs shall be made in 10.00 am (New York time) on 27 July, 2007 (unless postpones in accordance with the provisions of Section 11), or such other time not later than ten business days after such date as shall be agreed upon by the Joint Lead Managers and the Company (such time and date of payment and delivery being herein called Closing Time ) Payment shall be made to the Company in US dollars by wire transfer in immediately available funds to a bank account designated by the company and notified to the Joint Lead Managers by 4.00 pm on the second business day prior to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refully gone through said judgment. In the said case, issue raised were different and case proceeded on the assumption that one of the services provided by the Joint Lead Manager is that underwriting . This is evident from para 13 of the said judgment which reads as under:- 13. We have considered arguments on both the sides. We are not in agreement with the argument of Revenue that the service of Underwriting has to be necessarily provided by merchant bankers. We also do not agree with the argument that providing Underwriting Service is incidental to the services rendered as a Lead Manager to the issue. This is basically because the latter involves basically organizing an event viz. issue of the FCCBs and the former involves financial risk to the underwriters and the two matters are totally different in nature. We are also not in agreement with the argument that the contract has to be considered as a whole and classified considering it as a single service and subjected it to tax. This is because the services are distinct in nature and the contract lays down the services as distinct services with separate remuneration fixed for the two services. Further if at all it is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the impugned order was not an issue in the said case and in the said case discussion started on the assumption that activities are under writing while in the present case this itself is being questioned and is the main issue before us. None of the judgements of Hon'ble Supreme Court Hon'ble High Court cited by learned Advocate prohibits this Tribunal to examine an issue not examined in decision of other appellant. In view of this position the said judgements do not support the cause of appellant. Learned Advocate also wanted us to refer the matter to Larger Bench. In our view, we are not taking different/conflicting view on issue, rather issue being decided being different, in our view, the matter cannot be referred to Larger Bench. 14. Ld. Advocate has quoted Hon'ble Supreme Court judgement in the case of Naini Gopal Lahiri Others (supra). We have gone through the said judgement, which was in connection with Criminal case under Section 420 read with Section 34 of the Indian Penal Code. Definition of underwriter under Finance Act, 1994 or SEBI (underwriter) Rule, 1933 was not under consideration before the Hon'ble Supreme Court. In fact in para 12 of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider it necessary to discuss the remaining cases mentioned by learned Advocate. 16. Learned Advocate for the appellant has stated that in para 6.3 of the impugned order it is held that the requirement of registration under SEBI would apply to merchant bankers functioning from India and not from abroad. We observe that Banking and other financial services are defined under Section 65 (12) of the Finance Act, 1994 as under:- [(12) banking and other financial services means - (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern, namely :- (i) (ii) (iii) merchant banking services ; (iv) (v) (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; (vii) (viii) banker to an issue services; and (ix) (b) Foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73(1) needs as under:- Provided that where any Service Tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of - (a) fraud; or (b) collusion; or (c) wilful mis-statement; or (d) suppression of facts; or (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of Service Tax, by the person chargeable with the Service Tax or his agent, the provisions of this sub-section shall have effect, as if, for the words one year , the words five years had been substituted. Since there was suppression of facts, we hold that extended period is correctly invoked. We also uphold penalties under Section 77 and 78 of the Finance Act, 1994. 18. Learned Advocate for the appellant has quoted number of case laws relating to excise to contend that extended period of limitation is not invokable. Most of these judgments are of the era where assessment was done by officers. Concept of price list, classification list was in existence. Along with return all gate passes etc. were to be submitted. Thus most of the time, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances Hon'ble Supreme Court observed that appellant cannot be held guilty of suppression when the law was not certain. It was also observed that where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression. In the present case, there was no conflicting decisions. The fact of issue of GDRs was not informed/made known to the department/concerned official, same was not declared in the ST-3 returns. In the case of Tamilnadu Housing Board (supra) the appellant is a non-profit making statutory body, having two units, one a concrete unit whose products were sold to outsider and other a wood unit whose products were not sold but were fixed in the building constructed by the appellant. Licence was taken for first unit but not for second as they were advised orally by Central Excise Authorities that no licence is needed for it. In these circumstances, Hon'ble Supreme Court took the view that intent to evade duty is not proved. In the present case, allegation is only of suppression of facts. In the case of Padmini Products (supra) there was doubt about the dutiability of products viz. Aga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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