TaxTMI 
TaxTMI 
TaxTMI 
2014 (10) TMI 201
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.... Service Tax as "Merchant Banking Services" listed at (iii) under the category of "Banking and other Financial Services" under Section 65 (12) of the Finance Act, 1994 while the appellant claims the service to be "underwriting service" under Section 65 (105) (z) and 65 (117) of the Finance Act, 1994. 2. Learned advocate for the appellant submitted that two issues are involved in this cess viz. i) Whether or not Service Tax, under reverse charge mechanism, is payable on underwriting services taxable under Section 65 (105) (z) rendered fully outside India by Joint Lead Managers and Joint Bookrunners, M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International, as claimed by the Appellants, based on Hon'ble Tribunal judgement in Jubiliant Life Science Ltd. [2013 (29) STR (T)], wherein it has been held that even if entire Foreign Currency Convertible Bonds (FCCBs) are purchased and thereafter resold would be 'undertaking' classifiable and chargeable to tax under the head 'underwriting services' taxable under Section 65 (105) (z), in spite of single contract for carrying out of gamut of functions/activities relating to issue of FCCBs; ....
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....nt case, M/s Citigroup Global Markets Ltd. and M/s Goldman Sachs International also had purchased entire GDR and subsequently sold to general public. xi) That the said Hon'ble CESTAT judgement and order in the case of Jubiliant Life Sciences Ltd. has been accepted by CBEC and CBEC decided not file Civil Appeal on merits. xii) That in spite of purchase of GDRs by underwriters, the essential character of underwriting activity does not get vitiated based on the following: (a) Perfect Circle Victor Ltd. - 1992 (60) ELT 676 (SC) (b) CCE Vs. D.C.M. Textiles - 2006 (193) ELT 129 (SC) (c) Apar Industries - 2009 (92) RLT 968 (T) (d) Bhopal Sugars Inds. - (1997) 3 SCC 147 xiii) That Hon'ble Supreme Court judgement in Naini Gopal Lahiri And Ors. [1965 35 Comp Cas 30 SC] has held in para 13, it has been held that ".......... The underwriting agreement being a contract that the underwriter will either himself purchase or procure purchasers for the shares ....
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.... Firm-commitment underwriting - Underwriting in which the underwriter agrees to buy all the shares to be issued and remain financially responsible for any securities not purchased. The underwriter or the underwriting group, buys the securities from the issuer and resells them as principal. In this type of underwriting, securities that cannot be sold to the public are owned by the underwriter, and the issuer is paid for those securities as well as the others. Standby underwriting - Underwriting in which the underwriter agrees, for a fee, to buy from the issuer any unsold shares remaining other the public offering (xviii) Thus underwriters, in other countries, have to purchase and resell. This is because of the possibility that the potential investors may not have heard the name of the Indian company and would, therefore, hesitate to invest in its GDRs. It is only because of the well-know reputation of M/s. Citigroup Global Markets Ltd., M/s. Goldman Sachs International etc. the investors are attracted for subscribing the GDRs. In view of the above, legal and factual position p....
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....issued by the Ministry of Finance and the Reserve Bank of India from time to time. It was submitted that records were audited and returns filed. (ii) Further, following case laws were quoted (a) Collector Vs. Chemphar Drugs [(1999) 40 ELT 276] (b) Pahwa Chemicals Vs. CCE [2005 (189) ELT 257] (c) Pushpam Pharmaceuticals appellant Vs. CCE [ 1995 (78) ELT 401 (SC)] (d) Tamil Nadu Housing Board Vs. [1994 (74) ELT 9 (SC)] (e) Padmini Products Vs. [1989 (43) ELT 195 (SC)] 5. Learned A.R. on the other hand argued that in this case Joint Lead Manager had purchased all the GDRs on 23.07.2003 from the appellant and thereafter would have sold to the subsequent purchasers. This is not what is expected of an underwriter. An underwriter, as per the Finance Act, 1994 read with SEBI (Underwriter) Rules, 1993, is expected to subscribe to unsubscribed portion. Even the agreement dated 23.07.2007 is "Purchase Agreement" and not an Agreement to underwrite. Ld. A.R.....
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....derwriter" and "Underwriting" are defined under the Securities and Exchange Board of India (Underwriter) Rules, 1993 as under- "Underwriter" means a persons who engaged in the business of underwriting of an issue of securities of a body corporate. "Underwriting" means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them. 7. From the above definitions, it is evident that for purposes of Finance Act, 1994, "Underwriting" means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such body corporate or the public do not subscribe to the securities offered to them. Thus in our view first and foremost condition is that securities are offered to the public or existing shareholders. The next requirement is an agreement to subscribe to the securities when the public or existing shareholders do not subscribe to the securities offered to them. This agreement is to be between the body corporate (whose securities are offered for sale) and the underwriter. Thus in br....
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....adshow, registration and listing fees, rating agency fees, and fees and expenses or trustee/fiscal agent or other agents. Out-of-pocket expenses incurred by the Joint Lead Managers will be capped at Rs. 5,00,000/- (excluding all out-of-pocket expenses incurred in the context of the Company's roadshow with investors) and expenses that may be incurred in excess will be subject to the Joint Lead Managers seeking prior approval from the company such approval shall not be unreasonable withheld. The company will also reimburse the Joint Lead Managers for any sales, use or similar taxes (including additions to such taxes, if any). The matter relating to underwriting the offer by the Joint Lead Managers would be subject, among other things, to (i) of an offering documents that contains all material information in the context of the offering, (ii) market conditions which are satisfactory to the Company Joint Lead Managers at the time of launch, (iii) receipt of each Joint Lead Managers final internal approvals, (iv) no material adverse change in the Company's business, financial condition or prospects, (v) mutually acceptable offering size, structure and pricing,....
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....cluding the exemption afforded by Rule 144A) [ "Rule 144A"] or Regulation S ["Regulation"] of the rules and regulations promulgated under the 1933 Act by the US Securities and exchange Commission ("Commission"). SECTION 2. Sale and Delivery to Joint Managers; Closing (a) Offered GDRS. On the basis of the representation and warranties herein contained and subject to the terms and conditions herein set forth, the company agrees to allot and issue the number of Offered GDRs set forth in Schedule A opposite the name of each Joint Lead Manager, and each Joint Lead Manager, severally and not jointly, agrees to purchase from the company, at a price per GDR of US$ 15.4306 (the "Purchase Price") the number of Offered GDRs set forth in Schedule A opposite the name of such Joint Lead Managers, plus any additional number of Offered GDRs which such Joint Lead Managers may become obligated to purchase pursuant to the provisions of Section 11 hereof, subject in each case, to such adjustments among the Joint Lead Managers as the Joint Lead Managers in their sole direction shall make to eliminate any sales or purchases of fractional se....
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....not defined in Finance Act, 1994. Once the term underwriter and underwriting are defined in the Finance Act, 1994, meaning and scope as per that definition alone has to taken. We also note that definition and scope in the Finance Act, 1994 read with SEBI (Underwriting) Rule, 1993 is not vague or ambiguous but clear and precise. Under these circumstances, we do not consider it necessary to discuss the scope as per the definition in the laws of USA or UK or Dictionary. 12. Another important contention of the Ld. Advocate is this Tribunal's decision is the case of M/s Jubiliant Life Science Ltd. Vs. Commissioner of Central Excise, Noida reported in - 2013-TIOL-580-CESTAT-DEL. We have carefully gone through said judgment. In the said case, issue raised were different and case proceeded on the assumption that one of the services provided by the Joint Lead Manager is that "underwriting". This is evident from para 13 of the said judgment which reads as under:- "13. We have considered arguments on both the sides. We are not in agreement with the argument of Revenue that the service of Underwriting has to be necessarily provided by merchant bankers. We also do not a....
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....that in view of the judgement of this Tribunal in the case of M/s Jubiliant Life Science Ltd. (supra) appellant's are entitled to get relief and the Tribunal is prohibited from taking a contradictory decision in view of the Hon'ble Supreme Court decision in the case of Gammon India Ltd. (Supra) Metader Foam (Supra), Jindal Dye (Supra) and Hon'ble Bombay High Court decision in the case of Mercedes Benz. We have carefully gone though the said judgments. At the outset, we observe that we entirely agree with the reasoning of this Tribunal in the case of M/s Jubiliant Life Science Ltd. and are not taking a conflicting or different decision. However we find that issue raised by the Revenue in the impugned order was not an issue in the said case and in the said case discussion started on the assumption that activities are under writing while in the present case this itself is being questioned and is the main issue before us. None of the judgements of Hon'ble Supreme Court & Hon'ble High Court cited by learned Advocate prohibits this Tribunal to examine an issue not examined in decision of other appellant. In view of this position the said judgements do not support the ....
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....vity does not get vitiated. Learned Advocate has quoted certain case laws, which are relating to excise matter in respect of goods (amounting to manufacture, valuation etc.). In our view it may not be appropriate to consider these. We also note that Hon'ble Supreme Court decision in the case of Perfect Circle Victor Ltd. is relating to valuation i.e. various discounts on goods. We are not able to appreciate, how it helps the cause of appellant. We find citation Commissioner of Central Excise Vs. DCM Textiles - 2006 (193) ELT 129 (SC) pertains to CCE Vs. Pass Pipes Resplendents Ltd. In the said case issue was whether Printing/decorating of plain glazed ceramic tiles amounts to manufacture. We do not consider it necessary to discuss the remaining cases mentioned by learned Advocate. 16. Learned Advocate for the appellant has stated that in para 6.3 of the impugned order it is held that the requirement of registration under SEBI would apply to merchant bankers functioning from India and not from abroad. We observe that Banking and other financial services are defined under Section 65 (12) of the Finance Act, 1994 as under:- [(12) "banking and other financial s....
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....es received by the appellant is covered by the scope "Banking and other financial services". 17. Appellant has argued that notice is time barred as extended period of limitation cannot be invoked as issue of GDRs was known to everyone and receipt have been shown in their Balance Sheets and audit party has audited their records. We note in this case GDR's were issued in July, 2007 and these would be available in Balance Sheets of 2007-08 which will normally be available after Sept. 2008. Even this Balance Sheet is not required to be submitted to the Range Supdt. /Asst. Commissioner. We also note that demand notice is issued on 13.01.2009. What is required is whether details were mentioned in the ST-3 returns filed and if so, when? Clearly, no such details were mentioned in ST-3 returns. Department was also not informed about the service received and the payment made thereon in connection with issue of G.D.R. Even the ST-3 returns are self assessed by the appellants. Thus overall department was not aware or in knowledge of the facts relating to service received from abroad. Proviso to Section 73(1) needs as under:- "Provided that where any Service Tax has not....
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....od is not invokable. This reasoning of the Tribunal was upheld by the Hon'ble Supreme Court. In the impugned case, allegation is of suppression of facts. There is no evidence that appellant has through a letter of ST-3 return had informed the department about the issue of GDR. In the case of Pahwa Chemicals Pvt. Ltd. (supra) assessee was putting label of foreign party and Revenue wanted to deny benefit of SSI Notification No. 175/86 CE and 1/93-CE. The classification list was approved by Sector as well as Range officer after carrying out verification. There were differing views of the Tribunal and issue was settled by Larger Bench, in the case of Namtech systems Ltd. In these circumstances, since all the facts were in the knowledge of department, Hon'ble Supreme Court took a view that this is not a case of wilful misdeclaration or wilful suppression. In the present case, as noted earlier details were not known to the department and allegation is only of suppression of facts. The case of Pushpam Pharmaceutical Company (supra), issue was exactly same as in case of Chemphar Drugs. In this case Hon'ble Supreme Court observed that excisability of exempted goods was settled b....