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ST – If assessee had paid tax under reverse charge mechanism, they would have been entitled to CENVAT credit of exactly same amounts – in view of revenue neutrality, extended period of limitation cannot be invoked: CESTAT

2019-TIOL-2496-CESTAT-HYD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, HYDERABAD
COURT NO. I

Service Tax Appeal No. 30545 of 2016

Arising out of Order-in-Appeal No. HYD-EXCUS-003-APP-0011-16-17-ST, Dated: 19.04.2016
Passed by Commissioner of Service Tax (Appeals) Hyderabad

Date of Hearing: 17.06.2019
Date of Decision: 17.06.2019

M/s ASMITHA MICROFIN LTD
1-2-58,PLOT NO. I-3, ‘N’ BLOCK, KAKATIYANAGAR
HABSIGUDA, HYDERABAD

Vs

COMMISSIONER OF CUSTOMS CENTRAL EXCISE AND SERVICE TAX
HYDERABAD-III COMMISSIONERATE, KENDRIYA SHULK BHAWAN, L B
STADIUM ROAD, BASHEERBAGH, HYDERABAD

Appellant Rep by: Shri Mehta Anand & Ms Rupa Roy Advs.
Respondent Rep by: Shri Mir Anwar Mohiuddin, AR

CORAM: Sulekha Beevi C S Member (J)
P Venkata Subba Rao, Member (T)

ST – The assessee is a Public Limited Company registered as a Non-Banking Finance Company under Section 45 IA of Reserve Bank of India Act, 1934 – They entered into a Guarantee Fee Agreement with M/s Dexia Micro-Credit Fund, Luxembourg, a public limited company registered in that country – As per agreement, Dexia agreed to provide a guarantee to Standard Chartered Bank, London in relation to the amount borrowed by assessee from Standard Chartered Bank, Hyderabad – Pursuant to an audit, a SCN was issued to assessee covering the period April 2009 to March 2012 demanding service tax along with interest on the guarantee fees paid by assessee to M/s Dexia and M/s Cordaid – “Providing Bank Guarantees” is clearly covered by definition of Banking and other Financial Services under Section 65(12) of FA, 1994 – A plain reading of Section 65(12) shows that it covers various services including providing a bank guarantee by a banking company, financial institution or any other body corporate or commercial concern – It is true that Dexia and Cordaid are not banking companies but they have provided bank guarantees through Standard Chartered bank and through Robo, Netherlands, respectively to guarantee the borrowings by assessee – These are not the guarantees provided by a corporation for it’s subsidiaries but are pure bank guarantees provided through banks by the service providers – Therefore, on merits, assesee received banking and financial services from abroad and is liable to discharge service tax under reverse charge mechanism – However, demand is for a period April 2009 to March 2012 and the SCN was issued invoking extended period of limitation – The entire demand is under reverse charge mechanism and if the assessee had paid service tax under reverse charge mechanism, they would have been entitled to CENVAT credit of exactly the same amounts – Therefore, the revenue neutrality in this case is evident – It has been well settled at the hands of Apex Court in case of Jet Airways 2016-TIOL-2072-CESTAT-MUM that extended period of limitation cannot be invoked in revenue neutral cases – Therefore, the entire demand is hit by limitation: CESTAT

Appeal allowed

Case laws cited:

Jet Airways (I) Ltd Vs CST Mumbai – 2016-TIOL-2072-CESTAT-MUM… Para 3

Sterlite Industries Ltd Vs CCE – 2019-TIOL-879-CESTAT-MAD… Para 4

FINAL ORDER NO. 30694/2019

Per: P Venkata Subba Rao:

This appeal is filed against order-in-appeal No. HYD-EXCUS-003-APP-0011-16-17-ST dated 19th April 2016. The facts of the case in brief are that the appellant is a Public Limited Company registered as a Non-Banking Finance Company under Section 45 IA of the Reserve Bank of India Act 1934. They entered into a Guarantee Fee Agreement on 15th January 2010 with M/s Dexia Micro-Credit Fund, Luxembourg (Dexia for short), a public limited company registered in that country. As per the agreement Dexia agreed to provide a guarantee to Standard Chartered Bank, London in relation to the amount borrowed by the appellant from Standard Chartered Bank Hyderabad. In lieu of the guarantee provided by Dexia, the appellant paid a guarantee fee to Dexia. They also entered into a similar agreement guarantee agreement with M/s Cordaid, Netherlands [Cordaid] as per which Cordaid would place and pledge a deposit with M/s Rabo India Finance Private Ltd [Rabo India for short] by means of a guarantee from Rabo Netherland. In lieu of this guarantee, the appellant paid a guarantee fee to Cordaid. Pursuant to an audit of the appellant’s records for the period October 2008 to March 2013, a show-cause notice dated 17.10.2014 was issued to the appellant covering the period April 2009 to March 2012 demanding service tax of Rs. 29,21,803/- along with interest on the guarantee fees paid by the appellant to M/s Dexia and M/s Cordaid. It is the case of the department that the overseas service providers Dexia and Cordaid provided bank guarantees which are taxable under the head of banking and other financial services as per Section 65(12) of the Finance Act 1994 which reads as follows:-

” As per Sec 65 (12) of the Finance Act 1994 “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 hirepurchase;

‘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) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and

(iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment;

(ii) Omitted

(iii)merchant banking services;

(iv) Securities and foreign exchange (forex) brokinq, and purchase or sale of foreign currency, including money changing;

(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, advice on mergers and acquisitions and advice on corporate restructuring and strategy;

(vii)provision and transfer of information and data processing;

(viii)banker to an issue services; and

(ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults, operation of bank accounts;”

In the definition of banking and other financial services, providing bank guarantee is specifically included. Therefore, the overseas service providers Dexia and Cordaid who had provided bank guarantee services to the appellant had provided Banking and other Financial Services. Under Section 66A of the Finance Act 1994, where any services specified under Clause 105 of Section 65 are provided by a person who has his permanent residence outside India and received by a person in India, such service shall be taxable as if the receipinet himself had provided services in India. Therefore, under this reverse charge mechanism, the appellant, as a recipient of the services of banking and financial services in the form of bank guarantee, was liable to pay service tax on the consideration for such services paid by them.

2. After following due process, the lower authority confirmed the demand along with interest and also imposed penalties under Section 77 & 78 of the Finance Act which was upheld by the First Appellate authority. Hence this appeal.

3. Learned counsel for the appellant submits that in the first place, the services which have been provided are not in the form of bank guarantee at all. Bank guarantee is a guarantee provided by a bank. What is provided in their case is a form of corporate guarantee because it is provided by a company and not by a bank. Therefore the services which they received are clearly not covered under the definition of banking and other financial services. Her second line of argument was that they were audited before the show-cause notice was issued therefore it cannot be held that they had suppressed any facts. Their operations were in the knowledge of the department and they cannot be alleged to have suppressed any facts or wilfully misstated any facts with an intent to evade payment of duty. Thirdly, she would argue that the entire demand is under reverse charge mechanism and they themselves are registered with the service tax and have been availing the benefit of CENVAT credit. If any service was taxed under reverse charge mechanism, they will be entitled to the benefit of CENVAT credit of the service tax paid. Therefore, the entire exercise is revenue neutral. In view of the fact that the demand is completely revenue neutral, extended period of limitation cannoot be invoked as held by the Tribunal, Mumbai in the case of Jet Airways (I) Ltd Vs CST Mumbai [2016(44)STR 465 (Tri-Mum)] = 2016-TIOL-2072-CESTAT-MUM. Civil appeal filed by the assessee against this order was dismissed by the Hon’ble Apex Court as reported in 2017(7)GSTL J35 (SC)]. Therefore, the issue of invoking extended period of limitation in case of revenue neutrality has attained finality at the hands of the Apex Court. For this reason also extended period of limitation cannot be invoked and no penalties can be imposed upon them. Once the extended period of limitation is not allowed, the entire demand is time barred and it needs to be set aside on this ground alone.

4. Learned A.R., on the other hand, reiterates the finding of the lower authorities and asserts that the demand was correctly raised by the department and confirmed by the lower authority and by the first appellate authority. He argues that the appellants have not disclosed to the department that they were availing the benefit of these services and paying an amount to their over-seas service providers. Therefore, the extended period of limitation can be invoked. On merits he would argue that although the companies which have provided the services are themselves not banks what was provided was essentially in the nature of a bank guarantee for the appellant. This guarantee assures that if the appellant defaults in payment to M/s Stndard Chartered Bank or to M/s Robo India, the guarantor company will indemnify the banks against such loss. The case of Sterlite Industries Ltd Vs CCE [2019 (2)TMI 1249 (CESTAT-Madras)] = 2019-TIOL-879-CESTAT-MAD relied upon by the learned counsel for the appellant does not apply in this case because in the case of Sterlite Industries, the company was providing guarantee to it’s own subsidiaries and there was no bank involved in there. Therefore, the nature of guarantee provided was that of corporate guarantee and not a bank guarantee. As opposed to these cases, in the present case Standard Chartered Bank, London has provided a guarantee to Standard Charted Bank India at the behest of M/s Dexia and M/s Dexia was paid a fee by the appellant for the purpose. Similar is the case with M/s Cordaid. Therefore, this takes the form of bank guarantee and therefore, the demand is sustainable on merits.

5. We have considered the arguments on both sides and perused the records. “Providing Bank Guarantees” is clearly covered by the definition of Banking and other Financial Services under Section 65(12) of the Finance Act, 1994. These services can be provided by

(a) a banking company;

(b) financial institutions including a non-banking financial company; or

(c) any other body corporate or commercial concern.

A plain reading of Section 65(12) shows that it covers various services including providing a bank guarantee by a banking company, financial institution or any other body corporate or commercial concern. It is true that Dexia and Cordaid are not banking companies but they have provided bank guarantees through Standard Chartered bank and through Robo, Netherlands, respectively to guarantee the borrowings by the appellant. Learned counsel argued that these are corporate guarantees and we are not convinced. These are not the guarantees provided by a corporation for it’s subsidiaries but are pure bank guarantees provided through banks by the service providers. Therefore, on merits, we find that the appellant received banking and financial services from abroad and is liable to discharge service tax under reverse charge mechanism.

6. However, we find that the demand is for a period April 2009 to March 2012 and the show-cause notice was issued invoking extended period of limitation on 17.10.2014. The entire demand is under reverse charge mechanism and if the appellant had paid the service tax under reverse charge mechanism, they would have been entitled to CENVAT credit of exactly the same amounts. Therefore, the revenue neutrality in this case is evident. It has been well settled at the hands of the Apex Court in the case of Jet Airways (supra) that extended period of limitation cannot be invoked in revenue neutral cases. Therefore, the entire demand is hit by limitation and therefore needs to be set aside The impugned order is set aside and the appeal is allowed.

(Operative portion of the order pronounced in open court on conclusion of the hearing)

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