AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (4) TMI 31
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....ational PLC abroad, 0.75% of the aggregate principal amount of Bonds relating to US $ 500,000,000 as 'Management underwriting commission and selling commission' for the service provided by them which are alleged to be classifiable under "Banking and other Financial Services"; whereas the said service has been claimed and booked in their books of accounts as underwriting services. The amount paid by the Respondent on this account on 31.10.2009 to M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC was Rs. 18,00,37,500/- for issue of US $ 500,000,000 as Management Underwriting Commission and selling commission" was alleged to be paid to the Lead Manager for organizing, in raising capital funds through security bonds and that the activities are similar to that of 'merchant banking services' as per Circular 09.07.2001 and consequently fall under the scope of banking and other financial services. Consequently, demand notice was issued to the Respondent for recovery of the Service Tax amounting to Rs. 1,85,43,863/- with interest and penalty. However, on adjudication, the learned Commissioner dropped the proceedings initiated against the Respondent, observing that th....
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....greement. He has further submitted that the argument of the Respondent that in view of Clause 4.1.33 of the said agreement no managerial service is offered by the Respondent, is a baseless argument as the nature of service is not an "underwriting service" as held in the case of Axis Bank Ltd Vs Commissioner of Service Tax - 2014-TIOL-1926-CESTAT-MUM. It is based on the nature of job performed and in the impugned order, the Adjudicating Authority has not been gone into the terms of the agreement between the issuer and the Joint Lead Manager inter se, hence the order is bad in law. 6. Referring to Board's circular dated 09.07.2001, he has submitted that at Para 2.3, the merchant banking service has been explained as any service provided in relation to issue management, either by making arrangement regarding selling, buying or subscribing as manager, consultant, advisor or rendering corporate advisory service in relation to issue management, which inter alia, consists of service of underwriter and portfolio manager. Thus, merchant banking service covers bunch of services including underwriting. Unless the service provided is underwriting simplicitor, it will fall under the category o....
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....ase, has submitted that the Appellant was paying service tax on service received with respect to "Lead Manager" and not as "underwriter". The Hon'ble Tribunal held that both services are different and as per agreement, remuneration in respect of underwriting commission was 1.15% of bond subscribed and management fee was 0.1% of bond value. The Department proposed to classify the entire services under Lead Manager service rather than underwriting service. Thus, the facts of the said case were totally different, hence not applicable to the facts of the present case. On the other hand, the decision of the Tribunal in the case of Axis Bank Ltd. Vs. CCE 2014-TIOL-1926-CESTAT-MUM, is applicable to the present case. In that case the Tribunal confronted with the question between competing entries of classification viz. merchant banking service vis-à-vis under writing service. It ultimately held that Axis Bank has issued and sold the GDRs to lead manager who in turn, to resell all or portion of the offered GDRs to subsequent purchasers, hence the said service cannot be considered as underwriting service. 10. Further referring to the Tribunal decision in the case of Sesa Sterilite Lt....
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....price after deducting the aggregate underwriting commission and the respondent was required to pay the underwriting commission and selling commission 0.75% of the aggregate principal amount of bond. 12. The learned Advocate further submitted that from the terms and conditions of the agreement, it is manifestly clear that M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC appointed as under writer, who had agreed to undertake the financial risk of retaining the un-subscribed securities in the event they failed to achieve 100% subscription of the issue. There is no other service that M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC were required to provide to the respondent. In support , the Ld. Advocate has referred to Clause 4.1.33 of the said agreement. It is their contention that the arrangement between the respondent and lead manager was to secure full subscription of the FCCB issue and the said activity is in the nature of underwriter service as defined under Section 65(105)(z) of Finance Act, 1994. Further, the learned Advocate has submitted that the underwriter services were fully performed outside India; hence would not consti....
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....ce provided by the lead managers which themselves purchase of whole of GDRs meant for public and offered for sale in full or part. Further, they have submitted that the appeal against the judgment in the case of Axis Bank Ltd is admitted by Mumbai High Court and is pending. 15. Further, the contention of the learned Advocate for the Respondent is that the present show cause notice was issued on 22.04.2013 demanding service tax for the period April 2009 to September 2009 invoking extended period of limitation. It is their contention that the proceedings/audit in relation to the instant case commenced from 28.04.2010 by DGCEI as well as local commissionerate. They have narrated the details of action taken from time to time by the department from the date chart for the period from 28.04.2010 to 24.07.2012. It is their contention that since all the facts have been within the knowledge of department and nothing has been suppressed, therefore invoking larger period of limitation is unsustainable. They have referred to the following judgments:- i) Jet Airways (I) Ltd Vs CST Mumbai - 2016 (44) STR 465 (Tri-Mum) ii) Reliance Industries Ltd Vs CCE LTU - 2016 (44) STR 42 (Tri-Mum) iii) Ar....
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....id service providers is chargeable to service tax under Section 66A of Finance Act, 1994. 20. Before considering the rival contentions, it is necessary to produce the relevant provisions of Finance Act,1994 which reads as follows:- Sec. 65(12) "Banking and other financial services" means - (a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern namely - (i) financial leasing services including equipment leasing and hire-purchase. Explanation- For the purposes of this item, "financial leasing" means a lease transaction where - (i) contract for lease is entered into between two parties for leasing of a specific asset, (ii) such contract is for use and occupation of the asset by the lessee. (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking: (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advise on mergers and a....
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....ervice is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be effected as follows:- (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description; (b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, insofar as this criterion is applicable; (c) when a service cannot be classified in a manner specified in clause (a) or (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration. 21. In order to determine the applicability of the aforesaid competing entries to the facts of the present case, it is also necessary to read the relevant conditions/clauses of the Subscription arrangement/agreement dated 24.9.2009 entered in to between the Respondent and the said M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC, the Lead Managers, who have provided the services to the Respondent, which....
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....cation Date") for use in connection with the listing of the Bonds on the Stock Exchange and hereby authorizes the Joint Lead Managers and their respective affiliates [as defined in Rule 501(b) of Regulation D under the Securities Act ("Regulation")] to distribute copies thereof in connection with the offering and sale of the Bonds, subject to and in accordance with the terms of Clause 2.2. 1.4 Publicity: The Issuer confirms the arrangements made on its behalf by the Joint Lead Managers for announcements in respect of the Bonds to be published on such dates and in such newspapers or other publications as it may agree with the Joint Lead Managers. 1.5 Conditions: The terms and conditions of the Bonds (the "Terms and Conditions") shall be in the form set out in Schedule 1 to this Agreement, with such changes as may be agreed in writing between the issuer and the Joint Lead Managers. The Terms and Conditions shall be consistent with a term sheet dated 24.09.2009 which shall form part of Schedule 1. 2. Agreements by the Joint Managers 2.1 Subscription: The Joint Lead Managers severally agree to subscribe and pay for the Bonds in the amounts set out in Schedule 5 at the Issue Price l....
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........................................................ Closing 7.1 Issue of the Bonds: At 10.00 a.m. (London time) (or such other time as may be agreed by the Joint Lead Managers and the Issuer) on the Closing Date, the issuer will issue the Bonds and procure the entry in the register of Bondholders of the names of the persons designated by the Joint Lead Managers to be the holders of the Bonds and will deliver to the Joint Lead Managers or its order in such place as the Joint Lead Managers may reasonably require the Global Certificate duly executed and authenticated representing the aggregate principal amount of the Bonds. Delivery of the Global Certificate and the completion of the register of Bondholders shall constitute the issue and delivery of the Bonds. 7.2 Payment: Against such delivery the Joint Lead Managers will pay or cause to be paid to the Issuer the net subscription moneys for the Bonds (being the aggregate amount payable for the Bonds calculated at the Issue Price less the commission and concession referred to in Clause 8. Such payment shall be made by a depository (the "Common Depositary") common to Euroclear Bank S.A./N.V. as operator of the Euroclear System and ....
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....er receives, free from any withholding, deduction, assessment or levy, the full amount of the payments set out herein. ......................................................................... SCHEDUEL 5 JOINT LEAD MANAGERS' UNDERWRITING COMMITMENTS FOR THE BONDS Joint Lead Managers Principal Amount of Firm Bonds to be subscribed Goldman Sachs (Asia) L.L.C. US $ 250,000,000 Morgan Stanley & Co., International P/G US $ 250,000,000 22. From the conditions of the Subscription Agreement dt.24.9.2009, it is clear that the Respondent pursuant to their foreign exchange requirement and to attract the foreign investment decided to issue convertible bonds of value US$ 500,000,000, which are convertible into the equity shares of the Respondent on maturity, had approached M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC for issue of the Bonds who also to act as their underwriter. The said M/s Goldman (Sachs) Asia LLC & M/s Morgan Stanley & Co. International PLC, through the subscription agreement obliged for distribution of security issued to the public and if it cannot be sold, they would be required to retain the security themselves on the closure of the ....
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....dered 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 agree with the argument that providing Underwriting Service is incidental to the services rendered as a Lead Manager to the issue. This is basically because the latter involves basically organizing an event viz. issue of the FCCBs and the former involves financial risk to the underwriters and the two matters are totally different in nature. We are also not in agreement with the argument that the contract has to be considered as a whole and classified considering it as a single service and subjected it to tax. This is because the services are distinct in nature and the contract lays down the services as distinct services with separate remuneration fixed for the two services. Further if at all it is to be considered as one single bundle we do not agree with the contention of Revenue that the dominant nature of the service is that of Lead Manager's services, since JPMS is earning a higher commission by underwriting the issue taking the risk involved. Further from the facts of the case as stated by JL....
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....er. Thus, the Joint Lead Manager who purchased GDR's cannot be considered as underwriter providing underwriting service. Even the agreement dt.23.07.2007 is titled as "Purchase Agreement". We therefore hold the services provided by M/s Citi and M/s Goldman Sach Ltd are not underwriting service within the meaning of Finance Act, 1994." 24. A simple reading of the said judgment it is clear that this Tribunal came to the finding that since it is a resell agreement and no conditions laid for functioning as 'underwriter' defined under Finance Act,1994 i.e. to make offer to the public or existing shareholders and whatever is not subscribed that has to be purchased/subscribed in terms of agreement by the person i.e. underwriter. In the said case, since Joint Lead Manager has purchased the GDR initially for resale subsequently, the Tribunal held that the service provided cannot be considered as an underwriter service, but fall under the category of Banking and other Financial Service providing the underwriting service. 25. In our opinion, there is no apparent conflict in the in the judgments of this Tribunal in Jubilant Life Science Ltd's case and Axis Bank Ltd's case on the concept of u....