Case Law Details
M/s. Paramount Communications Ltd. Vs CCE (CESTAT Delhi)
It is a matter of record that the appellant assessee have availed services of certain foreign based agencies for receiving external foreign commercial borrowings (ECB) from abroad. It is also a matter of fact that during 2006 to 2007, certain payments in the form of commission have been paid by the appellant assessee to the service provider in foreign exchange. It has not been denied by the appellant that services received by them are classifiable under the category of Banking and Financial Services as provided under section 65 (105) (zm). We find that as per the provisions of Section 66A of the Finance Act, 1994 read with Rule 3 of Taxation of Services (provided from Outside India and received in India) Rules, 2006, the recipient of services of above mentioned category needs to discharge their service tax liability as if such services have been performed in India. It is categorically been provided that even if a part of borrowings have been used abroad for the business purposes, the facts remain that recipient of services is based in India and therefore, as per the provisions Section 66A of Finance Act, 1994 read with relevant rules, the appellant assessee should have discharged their service tax liability in India, on the amount of commission paid by them as the value of services received by them from abroad. Thus, we hold that appellant assessee are legally liable to pay service tax on the service of foreign institutions availed in getting their ECBs.
FULL TEXT OF THE CESTAT JUDGMENT
The issue in brief is that appellant –assessee is engaged in manufacture of insulated wire and cables falling under Chapter heading 8544 of Central Excise Tariff. During the financial year 2006-07, the appellant decided to raise funds for diversification / expansion of their business activities in India and for this purpose, they have taken external commercial borrowings from overseas market. Forgetting the External Commercial Borrowings (ECB) facilitated from abroad, the appellant have engaged M/s. Elara Capital and other agencies, who were based in London, for arranging such external commercial borrowings. After the necessary funds have been arranged by M/s. Elara Capital and others for which they have raised certain invoices indicating their charges in foreign currency for providing services of arranging ECB to the appellant abroad.
2. During the Audit of the CERA, it was noticed by the department that the appellants have not discharged their service tax liability under the category of Banking and Other Financial services as defined under section 65 (105) (zm) of Finance Act, 1994. It has been the contention of the department that as per the provisions of section 66A of the Finance Act, 1994 read with Rule 2 (1)(4) of Service Tax Rules, 1994, and read with Rule 3 of Taxation of Services (provided from outside and received in India) Rules 2006, the appellant assessee should have paid service tax on the amount of commission paid by them to the foreign based service provider under Reverse Charge Mechanism basis. Accordingly, a show cause notice came to be issued wherein a demand of Rs. 48,79,542/- was demanded under section 73(1) of the Finance Act, 1994. The Provisions of section 75, 76 and 78 have also been invoked. Learned Additional Commissioner vide Order-in- Original No. 39/NA/Div-I/2012 dated 8.11.2012 has confirmed the demand of service tax, interest and penalties have also been confirmed under the respective sections of the Finance Act. The learned Commissioner (Appeals) vide its order dated 30.8.2013 has confirmed the findings of the Order-in-Original.
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