2016 (1) TMI 260 - AT - Service Tax

Appellant liable for service tax on foreign merchant banking services. Penalties waived, tax upheld.

The Tribunal found the appellant liable to pay service tax under section 66A of the Finance Act, 1994, for merchant banking services provided from outside ... Levy of penalty - Waiver u/s 80 - appellant is not disputing the leviability of service tax. - Import of services - service of merchant banking in relation to external commercial borrowings (ECB) and Global Depository Receipts (GDR) - Held that:- t the appellant paid the service tax on 18.12.2007 whereas the show cause notice was issued on 11.08.2008 and adjudicated on 18.08.2011. The prompt payment of service tax even before the issue of show cause notice shows the genuineness of the appellant. It is a case of bonafide belief of the appellant that service tax was not payable. Even the interest was paid soon after the passing of the adjudication order. Most importantly, it is seen that whatever tax is paid by the appellant is available to them as Cenvat credit. In such a situation, being a big company, we are of the view that the appellant had no intention to avoid payment of service tax which would have been available to them as Cenvat credit and non payment would not result in any financial benefit. The case deserves waiver of penalty under section 80 of the Finance Act and we order so. - Penalty waived - Decided in favor of assessee. Issues:- Applicability of service tax on merchant banking services provided from outside India and received in India.- Liability of the appellant to pay service tax under section 66A of the Finance Act, 1994.- Imposition of penalties under sections 76, 77, and equivalent penalty under Section 78 of the Finance Act.- Request for waiver of penalty under section 80 of the Finance Act.Analysis:1. The appellant availed external commercial borrowings (ECB) and raised capital through Global Depository Receipts (GDR) with the assistance of lead managers based abroad. The issue revolved around the applicability of service tax on the merchant banking services provided by these lead managers from outside India and received in India.2. The adjudicating authority held that the service of merchant banking is subject to service tax under section 65(12) read with section 65(105)(zm) of the Finance Act, 1994. Additionally, it was determined that under section 66A of the Finance Act, where taxable services are provided from a country other than India to a recipient in India, such services are taxable. Consequently, the appellant was found liable to pay service tax under section 66A of the Finance Act, 1994, along with penalties under sections 76 and 77, as well as an equivalent penalty under Section 78.3. The appellant paid the entire service tax amount under protest before the issuance of the show cause notice. Interest and a portion of the penalty were also paid promptly after the communication of the impugned order.4. During the hearing, the appellant did not dispute the leviability of service tax but sought a waiver of penalty under section 80 of the Finance Act. The appellant argued that at the time, there was a genuine belief that service tax was not payable due to the circumstances surrounding the raising of funds abroad and the consumption of services outside India. Additionally, the appellant highlighted that the service tax paid could be availed as Cenvat credit.5. The Tribunal considered the appellant's submissions and noted the prompt payment of service tax, the genuine belief of the appellant regarding tax liability, and the availability of Cenvat credit for the tax paid. Given these factors and the lack of financial benefit from non-payment, the Tribunal granted a waiver of penalty under section 80 of the Finance Act while upholding the service tax demand and interest.6. Ultimately, the Tribunal partially allowed the appeal by waiving the penalties imposed under the impugned order, maintaining the confirmation of the service tax demand and interest. The appeal was disposed of accordingly.