Tribunal rules non-resident bank liable for service tax on issue management services The Tribunal ruled in favor of the Revenue, determining that the services provided by non-resident Joint Lead Managers constituted issue management ...
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Tribunal rules non-resident bank liable for service tax on issue management services
The Tribunal ruled in favor of the Revenue, determining that the services provided by non-resident Joint Lead Managers constituted issue management services falling under "Merchant Banking Services." The bank's argument that the services were underwriter services performed outside India and not liable for service tax was rejected. The Tribunal found that the services were issue management related services classified under banking and other financial services of the Finance Act as per SEBI rules. The bank was directed to deposit a specified amount within a set period and granted a stay of recovery for the remaining amount pending appeal disposal.
Issues: Taxability of service as merchant banking service or underwriter service.
Analysis: The case involved an application by a bank seeking waiver of pre-deposit and stay of recovery of service tax and penalties imposed by the Commissioner of Service Tax, Mumbai. The dispute arose from the taxability of services provided by non-resident service providers for facilitating the issue of Global Depository Shares (GDS). The Revenue contended that the services fell under "Merchant Banking Services" and were taxable, while the bank argued that the services were underwriter services performed outside India and not liable for service tax. The bank relied on SEBI regulations to support their classification of services as underwriter services, distinct from merchant banking services.
The Revenue argued that the services provided by non-resident Joint Lead Managers constituted issue management services falling under "Merchant Banking Services." They highlighted the reverse charge mechanism under Section 66A of the Finance Act, 1994, to levy service tax on the bank for receiving the services. The Revenue also referenced a Tribunal decision in a similar case where pre-deposit was ordered.
After considering the arguments, the Tribunal found that the services provided by non-residents were issue management related services, which are classified under banking and other financial services of the Finance Act as per SEBI rules. The Tribunal noted that the bank had appointed non-residents as Joint Lead Managers for the GDR issue, and the commission deducted by them before transferring net proceeds back to the bank indicated issue management services. The Tribunal also cited a previous case where pre-deposit was ordered, indicating a lack of a strong prima facie case by the bank. Consequently, the Tribunal directed the bank to deposit a specified amount within a set period and granted a stay of recovery for the remaining amount pending appeal disposal.
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