TaxTMI 
TaxTMI 
2013 (5) TMI 393
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..... A Show Cause Notice dated 21-5-2009 was in respect of services relating to issue of three series for FCCBs by JLSL. The adjudicating authority dropped demand in respect of services received prior to 18-4-2006 relying on the decision of the Mumbai High Court in the case of Indian National Shipowners Association v. UOI - 2009 (13) S.T.R. 235 (Bom.) that no liability would arise in such situation for period prior to 18-4-2006. This decision has been affirmed by the Apex Court [2010 (17) S.T.R. J57 (S.C.)] and C.B.E. & C. also has issued instructions accepting the decisions. So the appeal filed by Revenue is to be dismissed straight away. 3. Consequent to the position as above, the dispute about taxability of services relating to the first two series of FCCBs which happened prior to 18-4-2006 needs no further examination. In the third series of FCCB issued, M/s. J.P. Morgan Securities Ltd. ("JPMS" for short), U.K. was acting as the Lead Manager. They were also the underwriters to guarantee full subscription for the issue. Initially JLSL did not pay any service tax on payments made to JPMS in this matter. When this matter was noticed during the audit conducted by the officers of Re....
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....vices rendered by the JPMS under the contract with JLSL are briefly extracted below from the contract. "2. SUBSCRIPTION 2.1 Subject to the terms and conditions of this Agreement : (a) the Issuer agrees to issue the Bonds; (b) the Lead Manager, in order to facilitate an international offering of the Bonds, agrees to subscribe and pay and/or procure subscribers to pay for the aggregate principal amount of the Bonds at the Subscription Price on the terms of this Agreement 3. CLOSING 3.1 At 10.00 am (London time) on the Closing Date : (a) the Lead Manager (whether or not it has procured any subscribers to pay) will pay (subject to and in accordance with paragraph (b) below) to the Issuer the net subscription moneys for the Bonds, being the amount payable for the Bonds at the Subscription Price less the underwriting commission and management fee referred to in clause 4 in relation to the Bonds and less the amounts specified in clause 5; and (b) the net subscription moneys for the Bonds shall be paid in U.S. Dollars in immediately available funds, by crediting the same to such account with such bank as the Issuer may have previously specified in writing to the Lea....
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....to deduct from the subscription moneys for he Bonds as provided in clause 3 a sum of US$ 210,000 with respect to the costs and expenses set out in clauses 5.1(b), (c) and (d) on the basis that the Lead Manager will provide an itemized account to the Issuer no later than the date falling 90 days after the Closing Date. The Issuer further authorizes the Lead Manager to deduct from the subscription moneys for the Bonds as provided in clause 3 a sum of US$ 30,000 with respect to the costs and expenses set out in clauses 5.1(e) and (f), which costs and expenses the Lead Manager may settle as agent for the Issuer to the extent practicable and to the extent such sum is sufficient to cover such costs and expenses, and the Lead Manager shall provide to the Issuer an itemized account of such costs and expenses as settled and remit the balance of funds remaining after payment of such costs and expenses to the Issuer no later than the date falling 90 days after the closing date. For the avoidance of doubt, the Lead Manager shall not be deemed to hold such funds as a trustee, nor shall the Lead Manager be liable to the Issuer for any interest or other revenue or benefit arising from such funds.....
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....te. This para is reproduced below : "5.3.10 A study of the agreement in question indicates that the service provider J.P. Morgan were appointed to perform a whole gamut of functions/activities normally performed by Merchant Bankers. In my view, merely carrying out the activity of underwriting, within the act of providing the service of a merchant banker, will not qualify as rendering only " underwriter's service" as contended by the party as the entire gamut of service rendered is to be considered in a comprehensive manner while classifying such service. Underwriting is just one of the jobs of a merchant banker and therefore any person who provides services as a merchant banker/lead manager has to provide underwriting service as well while the reverse may not hold true for an underwriter. Accordingly, I hold that the services in respect of the FCCB-III were also similar as those in respect of other two FCCBs and were in the nature of 'Merchant banking'." 9. JLSL contests the finding of the Commissioner that Underwriting is part of the job of a Lead Manager. The Lead Manager's job involves only complying with the legal requirements for issue of the bonds giving publicity for t....
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....dvisory service in relation to such issue management". 11. He argues that by omitting the highlighted words in the actual definition, a different meaning has been given that merchant banker subscribes to bonds themselves in the ordinary course of rendering such services. The distorted definition also gives the impression that subscribing to securities as a manager also is the business of a merchant banker. He argues that a merchant banker only makes arrangements for an issue and gives advisory services in relation to issue but does not subscribe to the issue in the ordinary course of business a merchant banker. 12. The ld. AR for Revenue submits that the contract that was executed by JLSL with JPMS is for a range of services relating to issue of FCCBs. Underwriting was only incidental to the activity undertaken by JPMS as a Lead Manger of the issue. He argues that the entire service under the contract has to be considered as one bundle of service and the nature of that bundle of services has to be decided with reference to the dominant character of the services rendered and if this criteria is adopted the services are correctly classifiable under banking and financial service....