2014 (10) TMI 201 - AT - Service Tax

Appeal dismissed: Financial services not underwriting. Service Tax, penalties upheld.

M/s AXIS BANK LTD. Versus COMMISSIONER OF SERVICE TAX, MUMBAI-I

M/s AXIS BANK LTD. Versus COMMISSIONER OF SERVICE TAX, MUMBAI-I - 2015 (40) S.T.R. 993 (Tri. - Mumbai) Issues Involved:1. Classification of services provided by non-resident service providers (whether they qualify as 'underwriting services' or 'merchant banking services').2. Applicability of Service Tax under the reverse charge mechanism.3. Invocation of the extended period of limitation for issuing the show-cause notice.Detailed Analysis:1. Classification of Services:The primary issue is whether the services provided by M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International qualify as 'underwriting services' under Section 65(105)(z) of the Finance Act, 1994, or as 'merchant banking services' under Section 65(12) of the Finance Act, 1994. The appellant claimed the services were underwriting services, citing the agreement dated 08.06.2007 and the purchase agreement dated 23.07.2007, which involved the purchase and resale of Global Depository Receipts (GDRs). The appellant relied on definitions and precedents, including the Securities and Exchange Board of India (Underwriters) Regulations, 1993, and the Tribunal's judgment in Jubiliant Life Science Ltd. [2013 (29) STR (T)].The Tribunal, however, concluded that the services provided by M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International did not qualify as underwriting services. The Tribunal emphasized that underwriting, as defined under the Finance Act, 1994, involves an agreement to subscribe to securities that the public or existing shareholders do not subscribe to, which was not the case here. The agreements indicated that the GDRs were sold to the Joint Lead Managers, who then resold them to subsequent purchasers, which does not fit the definition of underwriting.2. Applicability of Service Tax:The Tribunal held that the services received by the appellant from M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International were not underwriting services but fell under 'Banking and other Financial Services' as defined under Section 65(12) of the Finance Act, 1994. Consequently, the services were subject to Service Tax under the reverse charge mechanism. The Tribunal rejected the appellant's contention that the services were provided and consumed outside India and thus not taxable under Rule 3(ii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006.3. Invocation of Extended Period of Limitation:The Tribunal upheld the invocation of the extended period of limitation for issuing the show-cause notice. The appellant argued that there was no suppression of facts as the GDR issue was widely known, and records were audited. However, the Tribunal noted that the details of the services received and payments made were not disclosed in the ST-3 returns filed by the appellant, and the department was not informed. The Tribunal cited the proviso to Section 73(1) of the Finance Act, 1994, which allows for an extended period in cases of suppression of facts, and concluded that the extended period was correctly invoked.Conclusion:The Tribunal dismissed the appeal, holding that the services provided by M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International were not underwriting services but fell under 'Banking and other Financial Services.' The Tribunal also upheld the applicability of Service Tax under the reverse charge mechanism and the invocation of the extended period of limitation. The penalties under Section 77 and 78 of the Finance Act, 1994, were also upheld.