TaxTMI 
TaxTMI 
2016 (12) TMI 229
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....1994. Two other notices were also adjudicated in the impugned order for the subsequent periods demanding tax of Rs. 1,68,37,586 and Rs. 1,92,18,542 for October 2009 to March 2010 and for April 2010 to March 2011 along with interest thereon and imposing penalties under section 76 and 77 of Finance Act, 1994. 3. The appellant borrowed funds for the 4000 MW Ultra Mega Power Project at Mundhra under the External Commercial Borrowing (ECB) scheme from overseas lenders and were contractually obliged to pay (i) commitment charges (ii) up-front fee (iii) arrangement fee (iv) agency fee and (v) out-of-pocket expenses for the period from April 2008 to March 2011 which the tax authorities alleged to be consideration for the rendering of 'banking and other financial services', defined in section 65 (12) and liable to tax under section 65(105)(zm) of Finance Act, 1994. Appellant had discharge tax liability on payments made under one or more of the above heads to the consortium of lenders but for two, International Financial Corporation (IFC) and Asian Development Bank (ADB). 4. The impugned held that the liability to discharge tax on the payments is enjoined, owing to the conditions in se....
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....ferred supra, in pursuance of Constitutional obligation under Article 253, specifically covering their activities. As the issue of exemption of the taxable service received by the appellant is uppermost, we take note of the schema of the law relating to levy and collection of service tax. Like every statute enacted for collection of indirect taxation, Finance Act, 1994 is not without inherent exemption, viz., the extra-jurisdictional and that which is not the object of the levy. Other exemptions are, generally, avenues afforded by the taxing statute for deliberate exclusion and implementation of policy prescriptions through instruments such as rules and notifications. The distinguishing feature of this tax is the levy on consumption of service in the hands of persons which is dissimilar to other indirect tax vested with the Union. Owing to that distinction, the core of the scheme requires mechanisms vastly different from other statutes to dovetail with the taxable event, i.e. consumption of service. This is particularly so when one of the transacting entities is in inherently exempt. National treatment is one of the pillars governing the international trading system and its ambit a....
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....ny country shall be treated as having a business establishment in that country. Explanation 2. - Usual place of residence, in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.' the legal fiction of taxable service and coalescing of recipient and provider in the same entity has been contrived and, notwithstanding the mutuality, the transaction captured in the tax jurisdiction. We see from the provision that there are two elements to the fiction with the existence of both as pre-requisite for other provisions of the Chapter to apply. These are the fiction of taxable service and the fiction of recipient being provider. Service originating outside the country, with the provider being jurisdictionally non-existent, inherently renders the circle of transaction flow incomplete. The free ends of the circle are brought together by deeming the activity as taxable and deeming the recipient to be the provider. In a domestic context, the contrarian mechanism of 'recipient pays' was in vogue though by transposing the object of tax. Therefore, except for outcome, 'reverse charge' is substantially different in Service Tax Rules, 1994 and....
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....Government hereby makes the following rules, namely:- 1. Short title and commencement. - (1) These rules may be called the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. (2) They shall come into force on the date of their publication in the Official Gazette. 2. Definitions. - In these rules, unless the context otherwise requires' xxxxxx 3. Taxable services provided from outside India and received in India. - Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services- (i) specified in sub-clauses (d), (m), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), (zzzy), (zzzz), (zzzza), (zzzzm), (zzzzu), (zzzzv) and (zzzzw) of clause (105) of section 65 of the Act, be such services as are provided or to be provided in relation to an immovable property situated in India; xxxxxx (ii) specified in sub-clauses (a), (f), (h),(i), (j), (l), (n), (o), (s), (w), (z), (zb), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzi), (zzl), (zzm), (zzo), (zzt), (zzv), (zzw), (zzx), (zzy),....
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....ata Steel v. Commissioner of Service Tax, Mumbai-I [2015-TIOL-2464-CESTAT-MUM]. As pointed out by Mr Singh, one of the questions referred to Third Member for determination of difference of opinion was articulated thus: '(i) In the facts and circumstances, whether the services have been received by the appellant-assessee beyond the Indian Territory, and hence not liable to Service Tax as held by Member (Judicial) OR Whether the services have been received within Indian Territory and hence liable to Service Tax as held by Member (Technical)' which was answered thus: '15. On a careful reading of clause (a) & (b) of Section 66A, it is quite clear that when the service provider is from outside India and the recipient of the service who has his place of business, fixed establishment, permanent address or usual place of residence in India, then the recipient of such service will be liable to pay service tax. This is also clear from the reading of Rule 3(iii) of Taxation of Services (Provided from Outside India & Received in India) Rules, 2006. As per provisions of this rule, the taxable services provided from outside India & received in India shall be such services as are r....
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....nking and financial institutions are eager to extend the loan due to high returns which they are able to get from such borrowers. In such cases, borrowers are not, in reality, paid the total amount but a small fees is charged by the tender. Such fees, in turn is used for the services of the marketing agent, etc. Thus indirectly, even in such cases, it is the borrower who pays for the service in respect of the lending. In case of commercial borrowing or borrowing from international banking and financial institutions, situation is different and here the borrower takes the help of certain agents or banks to procure the loan. This is what has been done in the present case. In the present case, the so called MLAs are none other than the banking and financial institutions and 10 of them put together has extended 90% of the loan and the remaining six banks have extended only remaining 10% of the loan. Thus, keeping in view the trade practices as also the holistic view of the operations, in my view, no distinction can be made for the services in connection with the loan vis-`-vis borrowing.' 13. We see from our earlier decision that if the establishment of the appellant in India, confor....
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....'Agreement means the Agreement for the establishment and operation of the international body known as the Asian Development Bank' and according to section 2 (a) of the International Finance Corporation (Status, Immunities And Privileges) Act, 1958 'Agreement means the Agreement for the establishment and operation of the international body known as the International Finance Corporation' The Schedule, subtitled as 'Provision of the Agreement which shall have force of law', and comprises Chapters within which are Articles in the former Act and comprises Articles within which are the Sections in the latter Act. Article 56 of Chapter VIII (dealing with Status, Immunities, Exemptions and Privileges) covers exemption from taxation extended to Asian Development Bank. Of these, we are not concerned with those extended to Directors, officers or employees of the Bank and restrict ourselves to that available to the Bank, i.e 1. The Bank, its assets, property, income and its operations and transactions shall be exempt from all taxation and from all customs duties. The Bank shall be exempt from any obligation for the payment, withholding or collection of any tax or duty. 2. xxxxx ....
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.... the events leading to the Second World War. Five international organizations came up as arms of the International Bank for Reconstruction and Development - one of these is the International Finance Corporation. India was represented at Bretton Woods and was a signatory to all the Agreements including that of the International Finance Corporation. The two Agreements required a member-country to accord, in its territory, the status, immunities, exemptions and privileges set forth in the Agreement. 15. Under Article 253 of the Constitution, legislation is necessary to render the Agreement enforceable. With such legislation, the immunities acquire force of law that prevail over any other law, even if contrary. It has been held that there is a constitutional obligation to enact laws in pursuance of international agreements and it has also been held that, till such enactment occurs, the agreements remain as unenforceable intentions. Conversely, every law enacted to honour international agreements become binding on every authority in the country. 16. However, Learned Special Counsel for respondent-Commissioner cites the findings in paragraph 4.11 of the impugned order that '4.11....
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....nd section 3 of the International Finance Corporation (Status, Immunities And Privileges) Act, 1958 are not applicable to every transaction in view of the proviso attached to them and contends that (b) and (c) of the proviso excludes excise duty/sales tax and service tax respectively from the privilege of exemption. This is undisputably so but it is moot whether the circumscribing impact of the exclusions to the exemption would permit the levy of tax on services rendered by these international bodies to the appellant. As we have observed supra, recourse to non obstante articulates the intent to allow those provisions to prevail over any other law, including tax laws. In such circumstances, such pre-conditioned reasoning fails in its attempt to insinuate that specific tax laws of the country were factored in for hammering out the terms of the Agreements. It is not far from our mind that these Agreements are specific to contexts, such as maintenance of peace, international development and growth, trans-border access to markets for global trade et al, and the supra-national bodies that are established to administer the Agreements are, by common consent and universal acclaim, accorded ....
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....cording immunity, the respective Acts refer to the contents of the Agreements and append the Agreement to the Act. It is left to legislation to enact manner in which specific exemptions are conferred but where a clarification is wanted, the Agreement itself must be referred to so that the objectives of the Agreement may not be compromised. Our assertion is only a reflection of the view taken by the Hon'ble Supreme Court in V/O Tractor Export, Moscow v. M/s Tarapore & Co and another [1 1970 SCR (3) 53] 'In this country, as in England, the treaty or International Protocol or convention does not become effective or operative of its own force as in some continental countries unless domestic legislation has been introduced to attain a specified result. Once the Parliament has legislated, the Court must first look at the legislation and construe the language employed in it. If the terms of the legislative enactment do not suffer from any ambiguity or lack of clarity they must be given effect to even if they do not carry the treaty obligations. But the treaty or Protocol or the convention becomes important if the meaning of the expressions used by the Parliament is not clear and can be....
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....ms does not admit to the existence of any general exemption from service tax for the two service providers in this dispute and that services received by the United Nations, and these two bodies, are exempt under notification no. 25/2012-ST dated 20^th June 2012. Inviting our attention to Star Industries v. Commissioner of Customs (Imports), Nhava Sheva [2014 (312) ELT 209 (Tri-Mum)] wherein the Tribunal relied upon judgements of the Hon'ble Supreme Court to hold that, while circulars of Central Board of Excise & Customs are not binding on the Tribunal, interpretation by those whose duty it is to construe, execute and apply a statute should be accorded appropriate weightage. He urged us to accept the opinion of the Central Board of Excise & Customs. We are not impressed by his urgings. We perceive this is also a case of mistaken identity. The principle of 'administrative construction' espoused by the Hon'ble Supreme Court in KP Verghese v. Income Tax Officer [(1981) 131 ITR 597 (SC) and reiterated in Collector of Central Excise, Guntur v. Andhra Sugar Ltd [1988 (38) ELT 564 (SC)] has been reserved for those concerned with law-making which, inter alia, includes notifications. The Cen....
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....d, owing to its intangibility, the consummation of service is deemed to be complete when a receiver and provider exist. The proposition of the adjudicating Commissioner would create a new dimension to the tax, viz., the geographical location of the provider, which is not envisaged in Finance Act, 1994. The national treatment for service rendered by Asian Development Bank and International Finance Corporation is unconditional tax exemption but, according to the adjudicating Commissioner, the national treatment is exemption conditional upon discharge of threshold tax merely because the provider is located outside the country. Section 66A has been legislated in Finance Act, 1994 to accord national treatment to services provided from outside after discharge of tax at threshold so that there would be no distinction between service providers located within India and outside India. The fiction of merging provider and receiver is a legislative imperative as the provider based abroad is jurisdictionally non-existent in the eyes of the sovereign legislature. 24. That Asian Development Bank and International Finance Corporation are existing entities in the eyes of the sovereign legislature....
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....pient is legislated as tax payer. When the enactments that honour international agreements specifically immunize the operations of the service provider from taxability, a law contrary to that in the form of section 66A which legislates such operations into tax net will not prevail. 28. In arriving at this interpretation, we are guided by two important considerations both of which flow from the mandate to respect and honour international commitments; more particularly when they have force of law. We have already observed the mischief that would follow to the principle of national treatment if we were to accept the position taken by the adjudicating Commissioner. Our place in the comity of nations is determined by our respect for commitments made at the international negotiation tables. Compliance, as a signatory to international treaties, conventions and agreements, has been the subject of various disputes before the Supreme Court. In the initial years, a strict view with Article 253 as the centre-piece was the trend of judicial thinking. Thus the Hon'ble Supreme Court was not much convinced that the doctrine of 'pacta sund servanda' could override the constitutional prescription....