TaxTMI 
TaxTMI 
2021 (3) TMI 1345
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....ks of Federal Republic of Germany. 2. Brief fact of the case is that the Appellant is a manufacturer of BOPP films since January, 2009. In order to expand their production capacity and import Capital Machinery, Appellant has obtained "External Commercial Borrowing [ECB]" from the "Lender Banks" of Federal Republic of Germany, as per their written agreements on consideration of the interest, Management Fees and Commitment Fees. As per the statutory provisions of law in Germany, Lender Banks in Germany can provide such "ECB", only when the Lender Bank has obtained "Insurance Cover" from "HERMES", Agency nominated in Germany and acting on behalf of "Federal Republic of Germany" for securing "Lender Banks" maximum upto 95% of Loan Amount, in case Borrower defaults in making repayment of the Loan Amount to the Lender Banks. As per Loan agreements, "HERMES" Premium amount is first paid by Lender Banks to "HERMES" and then it is reimbursed from Appellant by including in the loan amount and after reimbursing Appellant has been paying interest thereon. Appellant has obtained External Commercial Borrowing[ECB] from "Lender Banks" of Federal Republic of Germany, as shown hereunder :- ....
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.... Germany in respect of Goods & Services exported by them from Federal Republic of Germany, and such charges of Premium is for Insurance Cover are collected by Federal Republic of Germany for protecting German Companies in event of political risks as well as commercial risks. "Hermes Costs" or "Hermes Commission" or "Hermes Premium", nature of payment is fee or charges paid to Federal Republic of Germany. The transaction of Hermes Covers are between Federal Republic of Germany and lender Banks, and these transaction are admittedly neither between Federal Republic of Germany and Appellant, nor between Lender Banks and Appellant. Thus, Appellant was nowhere directly connected with Hermes Cover, and hence Appellant could not have been saddled with Service Tax liability in respect of such transactions between two other organizations in Federal Republic of Germany. Transactions between Federal Republic of Germany and lender Banks take place in Germany, which is not a territory under control and jurisdiction of Union of India. Thus, provisions of Finance Act, 1994 regarding levy and collection of Service Tax are not applicable and not enforceable for such transactions occurring in a forei....
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....Tax on Management fees and Commitment fees with respect to loan transactions, which involved other elements like Hermes premium and ECA premium trench. When Audit officers brought to appellant's notice that service tax was chargeable on Management fees and Commitment fees with respect to loan agreements dated January 7th/11th, 2011 (Hermes premium and ECA premium trench were also there in Agreement), appellant has discharged Service Tax liability, and appellant has then regularly paid Service Tax on Management fees and Commitment fees for all loan agreements including 4 loan agreements in this case. If Audit Officers, had pointed out that there was a liability to pay service tax on Hermes premium and ECA premium trench, appellant would have discharged service tax liability on such elements; and appellant would have taken credit of service tax the way credit was availed for service tax paid on Management fees and Commitment fees involving the same loan agreements. The facts show that Revenue officers were aware about Hermes Premium etc., and that there were genuine reasons for Appellant to form a bonafide belief that service tax was not chargeable on disputed element Hermes Premium.....
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.... 789 (Tri. - Bang.) - PRECOT MILLS LTD vs CCE * 2014 (308) E.L.T. 535 (Tri. - Ahmd.)- ALEMBIC LTD vs CCE, Vadodara-I * 2015 (329) E.L.T. 449 (Tri. - Mumbai) - CCE vs SPECIAL STEEL LTD, which is also maintained vide 2016 (334) E.L.T. A123 (S.C.)] * 2016 (333) E.L.T. 124 (Tri. - Mumbai) - Mahindra & Mahindra Ltd. Vs CCE * 2018 (15) G.S.T.L. 291 (Tri. - Del.) - V.E. Commercial Vehicles Ltd vs CCE, which is maintained vide 2019 (31) G.S.T.L. J96 (S.C.)] * 2019 368) E.L.T. 105 (Tri. - Mumbai) - MAHINDRA & MAHINDRA LTD. Vs CCE, Mumbai, which is maintained vide 2019 (368) E.L.T. A41 (S.C.)] * 2019 (20) G.S.T.L. 265 (Tri. - Mumbai) - RELIANCE SECURITIES LTD vs CST 3.4 They also submitted that amount of Rs. 21,54,01,570/- on which Service Tax is demanded has been included in Loan amount and they have been paying "interest" to the foreign Lender Banks. Therefore, for Loan amount including Rs. 21,54,01,570/- is Loan extended by Lender Bank and consideration is interest, which is transaction covered in Negative List u/s 66D(n) of Finance Act 1994 and hence not liable to Service Tax. 3.5 They submitted that disputed amount of HERMES premium [Rs. 21,54,01,57....
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....00 (119) E.L.T. 718 (Tribunal - LB) - JAY YUHSHIN LTD vs CCE, New Delhi * 2019 (29) G.S.T.L. 304 (Tri. - Mumbai) - Board of Control For Cricket In India vs CST, Mumbai-II * 2014 (306) E.L.T. 635 (Tri. - Ahmd.) - NATIONAL CONDUCTORS vs CCE, Daman * 2017 (4) G.S.T.L. 340 (Tri. - Del.) - SHREE RANIE GUMS & CHEMICALS PVT. LTD vs CCE, Jaipur * 2017 (355) E.L.T. 562 (Tri. - Del.) - NITIN SPINNERS LTD. vs CCE, Jaipur-II * 2019 (31) G.S.T.L. 64 (Bom.) - SALIM TRAVELS vs CCE, Mumbai * 2008 (231) E.L.T. 3 (S.C.) - UOI vs DHARAMENDRA TEXTILE PROCESSORS * 2009 (238) E.L.T. 3 (S.C.) - UOI vs RAJASTHAN SPINNING & WEAVING MILLS 5. On careful consideration of oral and written submissions made by both sides and on perusal of the relevant records, we find that Appellant as manufacturer of dutiable goods who has obtained Loans in form of "External Commercial Borrowing [ECB]" from "Lender Banks" of Federal Republic of Germany, as per agreements on consideration of Management Fees, Commitment Fees and repayment of interest for ECB received by them. Adjudicating authority has confirmed Service Tax demand of Rs. 2,96,70,103/- with interest and equal penalty imposed for Banking and ot....
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....ge or reverse charges, as applicable in appropriate cases. Hence, it is essential first to ascertain who is the Service Provider and who is the Service recipient before considering one's liabilities on the Taxable Services in question. In the present case, we find that Service Tax is confirmed on the Insurance premium amount paid to HERMES by the lender Banks in Germany for providing Insurance cover to the lender Banks in Germany, which lender Banks have recovered from Appellant. However, Appellant claims it not liable to Service Tax as Appellant has not received Services provided by HERMES and service receiver are Lender Banks in Germany and hence Service Tax is not attracted under Finance Act 1994. From loan Agreements, we find that (i) "HERMES" has been acting jointly for and on behalf of the Federal Republic of Germany; (ii) "HERMES-Costs" is fees charged by HERMES for provision of HERMES-Cover and financing costs related; (iii) "HERMES-Cover" is export credit cover provided by HERMES securing repayment of loan up to ninety-five percent ( 95% ) of Loan granted pursuant to the loan agreements; (iv) "ECA"- and Euler Hermes, Hamburg/Germany, are institutions established under Fede....
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....n record in loan agreements. The appellant is liable to pay Service Tax under RCM or not in respect of the amount paid by Appellant to Lender Banks towards all HERMES premium charges during the period in question, is the question to be decided on merits, in the facts of this case. 5.2 We find that Order-in-Original that from Loan agreements, adjudicating authority has noted that "Hermes Guarantee/ ECA (Euler Hermes) Guarantee" means the guarantee issued or to be issued to the lenders by the Federal Republic of Germany, represented by the guarantor ( THE HERMES) to cover commercial and political risk involved in extending loans. It is a form of indemnity or insurance coverage to be provided by HERMES in favour of lender in respect of borrower's obligation. However, he has taken an incorrect view on facts with observations that (i) this is essential for availing/extending ECB. In fact, it is a condition precedent for loans to be extended to borrowers by lender.(ii) if the borrower did not agree with the re-imbursement of Hermses premium or cost, the lender banks will not process or sanction ECBs applied by them. (iii) Further, as per the contract entered between M/s Chiripal w....
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...., it is found that Appellant has failed to discharge their service tax liability totally amounting to Rs. 2,96,70,103/- on "Hermes-costs/Premium", "ECA Premium (Euler Hermes)" and on Processing Fee paid as detailed In Table-(IV) below: TABLE-(IV) Sr. No. Loan Amount in Euro Other Charge Amount in Euro Refund Actual Amount (in Euro) Conversion Rate of Euro@ Amount in INR Date of Payment / Deduction Service Tax to be Paid 1 1,80,81,1 33 Risk Premiu m [HERME S) 13.98,0 00 0 13,98.0 00 71.4283 9.98.56,763 30.04.201 5 1,23,42.29 6 2 1,80,81,1 33 Process Fee to Agent 2.075.8 8 0 2.075.8 8 71.4283 1,48,277 30.04.201 5 18,327 3 l,79,10,760 Euler Hermis 12.86.3 84 96,681 11.89,7 03 70.734 8,41,52,452 22.12.201 6 1,26.22,86 8 4 39,55,000 Euler Hermis 2.82.07 7 19.371 2,62,70 6 70.734 1.85,82.246 22.12.201 6 27,87.337 5 26,31,000 Euler Hermis 1.96.06 6 22.621 l,73,445 73.002 1,26,61,83 2 25.01.201 7 18,99.275 Total 21,54,01,570 2,96,70,103 Appellant submit that entir....
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....ender Banks. Appellant have availed ECB with proper approvals by RBI and complied with requirements of procedure and have complied with provisions of various guidelines of ECB, FEMA Act and Income Tax Act as regards ECB in preparation or submission of Balance-Sheet. All information of Appellant is in public domain. Audit Officers had verified and audited Books of Account of Appellant from February, 2011 to March, 2012 and raised objection about non-payment of Service Tax on "Management fees" and "Commitment fees" charged by Lender Banks in such loan transactions, which were approved in MCA meeting involving period from February 2011 to March 2012. The audit objection were on Management fees and Commitment fees, but other elements like Hermes premium and ECA premium trenches, were also part of the very same loan agreement. When Audit officers brought to appellant's notice that service tax was chargeable on Management fees and Commitment fees in respect to loan agreements dated January 7th/11th, 2011, Appellant discharged Service Tax and regularly paid service tax on Management fees and Commitment fees for all such agreements including 4 agreements involved in the present case. If Au....
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....h facts of case, it cannot be said that the Appellant had any mala fide intentions to evade Service Tax payment, which was otherwise available to Appellant themselves as Cenvat Credit and that Appellant have suppressed any fact with intention to evade payment of service tax. There is nothing on record to show that any suppression of facts or illful misstatement were made on the part of the Appellant who has filed periodical ST-3 return regularly and disclosed all necessary details as required. In this circumstances charge of suppression or willful misstatement with intention to evade Service Tax can not be alleged against Appellant. For this reason no mala fide can be attributed to appellant. Hence longer period of demand can not be invoked. No mala fide can be alleged for such issue of interpretation and hence extended period of time limitation is not invocable in the facts of this case. We find that nature of services was in knowledge of Revenue since 2012 as Audit points decided to similar loan Agreements are known to Revenue. In such case when the facts were in knowledge of department, there is no ground to raise demand by invoking extended period of limitation. Thus demand for....