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TMI Blog2019 (5) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... as Corporation Limited. It owns and operates a Liquefied Natural Gas (hereinafter referred to as 'LNG') receiving, storage and re-gasification terminal at Dahej in the State of Gujarat. The Appellant has also set up another re-gasification facility (LNG Terminal) in the port based Special Economic Zone at Puthuvypeen, Kochi, ('SEZ') and is a co-developer along with the Cochin Port Trust, which is the developer of the SEZ. In order to undertake the expansion of Dahej Terminal and construction of a new LNG Terminal in SEZ at Kochi, the Appellant borrowed funds under the scheme of External Commercial Borrowing (hereinafter referred to as 'ECB') from various foreign lenders. For this purpose, the Appellant entered into a loan agreement dated 27 July, 2007 with the Asian Development Bank for the purpose of funding the expansion of Dahej Terminal. Pursuant to the clauses in the agreement, the Appellant paid commitment charges, front-end fee etc. to the Asian Development Bank. It did not pay Service Tax on the charges paid to the Asian Development Bank as according to it, it was not liable to pay Service Tax under the Asian Development Bank Act, 1966 that was enacted pursuant to an agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt alleging that the Appellant had failed to pay Service Tax on the value of commercial charges paid to the ECB lenders. The notice further alleged that the Service Tax has to be paid under the taxable category of "Banking and Financial Services" in terms of Section 68 of the Finance Act. The Appellant was, accordingly, required to show cause as to why : (i) Service Tax amounting to Rs. 3,77,00,598/- (includes Service Tax of Rs. 3,66,02,522/-, Education Cess of Rs. 7,32,050/- and Secondary & Higher Education Cess of Rs. 3,66,025/-) [rupees three crore seventy seven lakhs five hundred ninety eight only] should not be demanded and recovered from them under Section 73 of the Finance Act, 1994 by invoking the extended period of five years as per proviso to sub-section (1) of said section 73; (ii) Interest at the appropriate rate under Section 75 of the Finance Act, 1994 should not be recovered from them from the due date on which the Service Tax, Education Cess and Secondary & Higher Education Cess was liable to be paid to till date of payment; (iii) Penalty under Section 76, 77 and 78 of the Finance Act, 1994 should not be imposed upon them. 6. The Appellant filed a detailed re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 29 October, 2015. The Adjudicating Authority found as a fact that the nature of lending of consideration received by the Appellant had correctly been classified under the category of 'Banking and other Financial Services' and, therefore, the Appellant was liable to pay Service Tax under this category. The Adjudicating Authority then examined, whether the Appellant was liable to pay Service Tax on the commercial charges paid to Asian Development Bank, International Finance Corporation and PROPARCO to avail the ECBs. After referring to the Notifications dated 03 March, 2009 and 20 May, 2009, the Adjudicating Authority in regard to the charges paid to PROPARCO for the services provided by it, observed : "23.6 However, the services received by them from a person outside India cannot by any stretch of imagination be construed as services provided by them to SEZ. Moreover Notification No. 9/2009 dated 03.03.2009 provides that the exemption will be available by way of refund of service tax paid on the specific services used in relation to the authorized operations in the SEZ and not to all services provided elsewhere. The notice i.e M/s Petronet LNG Ltd. is not only carrying out o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Appeal Nos. 651 of 2011 and Service Tax Appeal No. 90005 of 2014 (Coastal Gujarat Power Limited Vs Commissioner of Service Tax, Mumbai-I), decided on 17 October, 2016 and in the matters of the Appellant in Service Tax Appeal No. 311 of 2012 (M/s Petronet LNG Limited vs CCE, New Delhi), decided on 18 January, 2001 and in Service Tax Appeal Nos. 53524 of 2014 (M/s Petronet LNG Limited vs CST, Delhi), decided on 27 February, 2018. In regard to the aforesaid judgment in Coastal Gujarat Power Limited, the learned counsel submitted that the Revenue had filed a Special Leave Petition before the Supreme Court, but the Board subsequently accepted the decision of the Tribunal by Circular dated 15 January, 2019 read with Circular dated 01 January, 2019 and directed that the SLP filed by the Department should be withdrawn and accordingly, the Revenue has filed an Application for withdrawal of the SLP. The learned counsel, therefore, submitted that the Issue No. (I) needs to be decided in favour of the Appellant. ISSUE NO. (II) 11. Learned Counsel for the Appellant submitted that the demand raised in this issue is for Rs. 30,06,192/- which can be broken up for two periods, namely, for a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive of the Department. ISSUE NO. (I) 16. This issue relates to lending services received from the International Finance Corporation and Asian Development Bank. The Appellant does not dispute that the ECBs have been obtained from the International Finance Corporation and the Asian Development Bank. The Appellant also does not dispute that it paid commitment charges/front end fees and certain other expenses to both the Asian Development Bank and the International Finance Corporation. What is, however, contended by the Appellant is that in view of the provisions of the Asian Development Bank, 1956 and the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 and the terms of the agreement entered into by India, the Appellant was not liable to pay any Service Tax. This issue was examined by the Division Bench of this Tribunal in Coastal Gujarat Power Limited, both with regard to the International Finance Corporation and the Asian Development Bank. The findings recorded in the judgment that the Appellant therein was covered by the immunity are reproduced below : "23. The proposition in the impugned order that appellant is not covered by immunity even if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of residence. Hence we conclude that the Asian Development Bank and International Finance Corporation do have an existence in India, even if not corporeally, by legislative acknowledgement. The services rendered by them are not de hors the provider as to require recourse to section 66A to be subject to taxation. It is section 66 that is to be invoked. 25. Taking this conclusion forward, we do not perceive the need for a separate exemption as the Agreement incorporated in the Schedule to the two Acts specifically provide that 'The Bank shall also be immune from liability for the collection or payment of any duty or tax.' And that 'The Corporation shall also be immune from liability for the collection or payment of any duty or tax.' 26. With the provider being not only immune from taxation but also absolved of any obligation to collect and deposit any tax, there is no scope for subjecting the recipient to tax in the absence of inclusion in the definition of 'person liable to pay tax' in rule 2 of Service Tax Rules, 1994. This would preclude tax on services rendered by the two entities under section 66 even if these were otherwise taxable and the immunity does not have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that notwithstanding anything to the contrary contained in any other law, the Corporation, its assets, properties, income and its operations and transactions authorised by the Agreement, shall be immune from all taxation and from all customs duties. The Corporation shall also be immune from liability for the collection or payment of any tax or duty [Section 3 (1) of IFC Act, 1958 read with Article VI, Section 9 (a) of the Schedule thereto refers]. 3. CESTAT Mumbai vide final order dated 17-10-2016 in the case of M/s Coastal Gujarat Power Ltd. has held that when the enactments that honour international agreements specifically immunize the operations of the service provider from taxability, a law contrary to that in the form of Section 66A of Finance Act, 1994 will not prevail. With the provider being not only immune from taxation but also absolved of any obligation to collect and deposit any tax, there is no scope for subjecting the recipient to tax. There is no need for a separate exemption and existing laws enacted by the sovereign legislature of the Union suffice for the purpose of giving effect to Agreements. 4. Accordingly, it is clarified that the services provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this tax was paid by the Appellant by TR-6 Challans dated 31 March, 2009 and 05 October, 2009. The Adjudicating Authority failed to take this amount into consideration at the time of passing of the Final Order and this amount has not been appropriated. The Appellant cannot be required to pay Service Tax twice on the services provided prior to 20 May, 2009. The impugned order to the extent it requires the Appellant to pay Service Tax for the period prior to 20 May, 2009, therefore, deserves to be set aside. 22. To examine the demand of Service Tax post 20 May, 2009, it would be appropriate to reproduce the relevant portions of the two Notifications dated 03 March, 2009 and 20 May, 2009 and they are as follows : "NOTIFICATION NO. 09/2009-SERVICE TAX, DATED : MARCH 3, 2009 G.S.R. 146(E) - In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), and in supersession of the notification of the Government of India, Ministry of Finance (Department of Revenue), No. 4/2004-Service Tax, dated the 31st March, 2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated the 31st March, 2004, vide, G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxxxxxx xxxxxxxx xxxxxxxx [emphasis supplied] 23. Proviso (c) to the aforesaid Notification dated 03 March, 2009, on which reliance has been placed by the Appellant and which has been referred to in the show cause notice and the impugned order, was amended by Notification dated 20 May, 2009. The same is reproduced below : "(c) the exemption claimed by the developer or units of Special Economic Zone shall be provided by way of refund of service tax paid on the specified services used in relation to the authorised operations in the Special Economic Zone except for services consumed wholly within the Special Economic Zone." 24. The Notification dated 03 March, 2009 grants exemption to the taxable services specified in Section 65 (105) of the Finance Act, 1994 provided in relation to the authorized operations in the Special Economic Zone and received by a developer or units of a Special Economic Zone, whether or not the said taxable services are provided inside the Special Economic Zone, from the whole of the Service Tax leviable thereunder under Section 66 of the Finance Act. The proviso, however, stipulates that the exemption claimed by the developer or units or Special Econom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnection with setting up of SEZ unit. Therefore, as clarified vide Notification No. 9/2009-Service Tax dated 03-03-2009, developers or units of a SEZ should pay service tax leviable thereon and subsequently may claim refund from the competent authorities irrespective of the position that whether such specified services are not consumed within SEZ." 27. A perusal of paragraph 8.2 of the notice given an indication that the claim of the Appellant based on the proviso (c), has not been accepted for the reason the services received by the Appellant from abroad cannot be said to be consumed wholly within the Special Economic Zone. The notice also states that though the funds received by the Appellant have to be used for the purpose of the construction and placing into operation the Kochi Terminal, but the funds borrowed could be used for receiving other services/goods in connection with the setting up of Special Economic Zone Unit. It has, therefore, been stated in the show cause notice that the Appellant could have, in terms of Notification dated 03 March, 2009, paid the Service Tax and subsequently claimed refund. 28. The Appellant in reply to the show cause notice submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services do not qualify as consumed within SEZ is baseless. 3.3.15 In light of the above, it is submitted that although the Noticee has entered into a transaction of ECB loan agreement with a service provider located outside India, the 'Banking and Financial Services' are received and consumed/utilized by the Noticee within the Kochi SEZ. Hence, PLL is eligible for upfront exemption on the Banking and Financial Services received by PLL from Proparco. 3.3.16 Thus, no service tax is payable on import of services by the Noticee from Proparco, which are entirely used for authorized operations in SEZ and consumed wholly within SEZ. Thus, the impugned SCN based on erroneous interpretation of the SEZ Notification and the Amended SEZ Notification, is liable to be set aside." 29. The Adjudicating Authority, however, did not accept the contentions advanced by the Appellant in reply to the show cause notice and repelled them in paragraph 23.6 and 23.7 of the order. These paragraphs have been reproduced above. 30. The observations of the Adjudicating Authority that the services received by the Appellant from a person outside India cannot by any stretch of imagination be considered a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SPA and one or more long term Kochi GSPA up to a capacity of 2.5 MMTPA of LNG." 33. Based on the aforesaid terms & conditions set out by PROPARCO, it has been submitted by the learned counsel for the Appellant that the borrowings had been used by the Appellant only for the construction of the LNG Terminal within the Special Economic Zone and so the services would qualify as 'wholly consumed within the Special Economic Zone'. It has, therefore, been submitted that the Appellant would be entitled to exemption from payment of Service Tax in terms of proviso (c) of Notification dated 03 March, 2009, as amended by Notification dated 20 May, 2009. 34. The submission of the learned counsel for the Appellant deserves to be accepted. The show cause notice does not contain a charge that the Appellant had utilized the borrowings for any other service outside the Special Economic Zone. In fact, as noticed above, the show cause notice did acknowledge that the funds received by the Appellant were to be utilized for the construction and placing into operation the Kochi Terminal, but the show cause notice further stated that the "funds borrowed could be used for receiving other services/goods i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age of the commodities and services produced as constitutes the "utilization" thereof. For each commodity, there is ordinarily what is generally considered to be the final act of consumption. For some commodities, there may be even more than one kind of final consumption. Thus grapes may be "finally consumed" by eating them as fruits; they may also be consumed by drinking the wine prepared from "grapes"." 36. The Supreme Court observed that 'consumption' consists in the act of taking such advantage of the commodities and services produced as constitutes the "utilization" thereof and for each commodity there can be a final act of consumption. The borrowings were to be utilized by the Appellant for the setting up of the LNG at Kochi within the Special Economic Zone and could not have been utilized outside the Special Economic Zone. It cannot, therefore be doubted that the services were meant for consumption within the Special Economic Zone and were consumed within the Special Economic Zone. 37. The learned Authorised Representative of the Department has, however, contended that for claiming exemption under the Notification dated 03 March, 2009, a developer or units of Special Econo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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