Foreign entities' service tax exemption upheld by Tribunal under "underwriting services" classification.

Commissioner of Central Excise, Goa Versus Sesa Goa Ltd

Commissioner of Central Excise, Goa Versus Sesa Goa Ltd - 2019 (25) G. S. T. L. 405 (Tri. - Mumbai) Issues Involved:
1. Classification of services provided by foreign entities under "Banking and other Financial Services" or "Underwriter Services".
2. Applicability of service tax under reverse charge mechanism.
3. Invocation of the extended period of limitation.

Detailed Analysis:

Issue 1: Classification of Services:
The primary issue is whether the services provided by M/s Goldman (Sachs) Asia LLC and M/s Morgan Stanley & Co. International PLC to the Respondent fall under "Banking and other Financial Services" as defined under Section 65(105)(zm) or "Underwriter Services" as defined under Section 65(105)(z) of the Finance Act, 1994.

The Respondent entered into a Subscription Agreement dated 24.09.2009 with the aforementioned entities for the issue of US $500,000,000 5% Convertible Bonds due 2014. The Revenue argued that the services rendered were classifiable under "Banking and other Financial Services", particularly "merchant banking services", and thus liable for service tax under reverse charge basis under Section 66A. The Respondent contended that the services were "underwriting services" as the Lead Managers agreed to subscribe to any unsubscribed portion of the bonds, thus bearing the financial risk.

The Tribunal referred to the definitions and principles of classification under the Finance Act, 1994, and relevant SEBI Rules. The Subscription Agreement's clauses indicated that the Lead Managers were to ensure full subscription of the bonds, and if not, they would subscribe to the remaining bonds themselves. This arrangement was deemed to fall under "underwriting services" rather than "merchant banking services."

Issue 2: Applicability of Service Tax:
Since the services were classified as "underwriting services," they fell under Rule 3(iii) of the Taxation of Services (provided from outside India and received in India) Rules, 2006. This rule implies that services performed outside India are not chargeable to service tax. The Tribunal upheld this view, stating that the core service provided was underwriting, and thus, the amount paid was not subject to service tax under the reverse charge mechanism.

Issue 3: Invocation of Extended Period of Limitation:
The Respondent argued that the extended period of limitation could not be invoked as there was no suppression of facts. The Tribunal noted that the proceedings and audits related to the case had commenced much earlier, and all relevant facts were within the department's knowledge. Therefore, invoking the extended period of limitation was unsustainable. The Tribunal referenced several judgments supporting the view that when the issue involves interpretation of law or conflicting decisions, the extended period of limitation should not be applied.

Conclusion:
The Tribunal concluded that the services provided by M/s Goldman (Sachs) Asia LLC and M/s Morgan Stanley & Co. International PLC were "underwriting services" and not "Banking and other Financial Services." Consequently, the amount paid by the Respondent was not liable to service tax under the reverse charge mechanism. The invocation of the extended period of limitation was also deemed unsustainable. The appeal filed by the Revenue was dismissed, and the impugned order was upheld.