Immunity under IFC statute barred service tax on a finance arrangement, and the connected penalty also failed.

Service tax on a finance arrangement routed through a foreign institution was held unsustainable because the immunity under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 was treated as extending to operations and transactions connected with the institution. The contrary view, that immunity would not apply merely because the assessee dealt with the institution, was rejected. The connected penalty was also found unsustainable because it rested on the same invalid levy and the disputed amount had been paid promptly after notice. The remaining admitted tax liability was not contested.

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Issues: (i) Whether service tax was leviable on the finance arrangement obtained through the foreign institution in view of the immunity conferred by the International Finance Corporation (Status, Immunities and Privileges) Act, 1958; (ii) Whether the penalty imposed could be sustained where the disputed tax amount had been paid promptly and the levy itself was not sustainable.

Issue (i): Whether service tax was leviable on the finance arrangement obtained through the foreign institution in view of the immunity conferred by the International Finance Corporation (Status, Immunities and Privileges) Act, 1958.

Analysis: The disputed demand related only to the transaction covered by the International Finance Corporation statute. The immunity granted under that enactment was treated as extending to the operations and transactions connected with the institution, and the contrary view that immunity would not apply merely because the assessee was dealing with the institution was rejected.

Conclusion: The service tax demand on the finance arrangement was not sustainable against the assessee.

Issue (ii): Whether the penalty imposed could be sustained where the disputed tax amount had been paid promptly and the levy itself was not sustainable.

Analysis: The penalty was linked to the same disputed finance arrangement. The amount had been paid immediately after notice and the levy on which the penalty rested was found to be unsustainable.

Conclusion: The penalty was not sustainable.

Final Conclusion: The appeal succeeded to the extent that the disputed tax demand and the consequential penalty were set aside, while the remaining admitted tax liability was not contested.

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