₹2.96 Crore Service Tax Demand on German ECB Insurance Premium Set Aside: CESTAT Ahmedabad

Chiripal Polyfilms Ltd. Vs Commissioner of C. Ex. & S.T. (CESTAT Ahmedabad)

Chiripal Polyfilms Ltd. Vs Commissioner of C. Ex. & S.T., Vadodara-I (CESTAT Ahmedabad): The CESTAT Ahmedabad set aside a Service Tax demand of Rs. 2,96,70,103/- along with interest and equal penalty raised under the Reverse Charge Mechanism (RCM) on HERMES insurance premiums, Euler Hermes/ECA premiums and processing fees connected with  External Commercial Borrowings (ECBs) obtained from German banks. The appellant, a manufacturer of BOPP films, had obtained foreign loans for importing capital machinery. The German lending banks secured insurance coverage against commercial and political risks and recovered the associated premiums from the appellant. The Department treated these payments as consideration for banking and other financial services and demanded Service Tax under the Finance Act, 1994.

The Tribunal observed that the Department had previously audited the appellant’s loan agreements and raised objections regarding Service Tax on management fees and commitment fees, which the appellant subsequently paid. The HERMES premiums were also covered by the same arrangements, and the Department was aware of the relevant transactions. The appellant had a bona fide belief that the disputed premiums were not taxable because the insurance coverage was obtained by the German lending banks and the amounts were included in the loans. Consequently, the Tribunal held that there was no evidence of wilful suppression, misstatement or intention to evade tax. The show cause notice dated 24 December 2020, covering transactions from April 2015 to June 2017, was therefore barred by limitation, and the extended period under Section 73(1) of the Finance Act, 1994 could not be invoked.

The Tribunal further accepted the appellant’s plea of  revenue neutrality, observing that any Service Tax paid under RCM would have been available to the appellant as CENVAT credit against its excise duty liability. During the relevant period, the appellant had discharged approximately Rs. 17.43 crore in excise duty through cash payments, demonstrating its ability to utilise such credit. Accordingly, the Tribunal concluded that the demand was unsustainable on limitation and revenue-neutrality grounds. Without finally deciding the substantive taxability of HERMES premiums, it set aside the Order-in-Original dated 2 August 2021 and allowed the appeal with consequential relief, thereby deleting the associated interest and penalty.

Cases Discussed:

• Intercontinental Consultants and Technocrats Pvt. Ltd. — 2013 (29) S.T.R. 9 (Del.) and 2018 (10) G.S.T.L. 401 (S.C.) — Cited regarding reimbursement of expenses.
• Sal Steel Ltd. v. Union of India — 2020 (37) G.S.T.L. 3 (Guj.) — Cited on territorial scope of service tax.
• H.M.M. Limited — 1995 (76) E.L.T. 497 (S.C.); Padmini Products — 1989 (43) E.L.T. 195 (S.C.); Chemphar Drugs & Liniments — 1989 (40) E.L.T. 276 (S.C.) — Relied upon regarding extended limitation and suppression.
• Jay Yuhshin Ltd. v. CCE — 2000 (119) E.L.T. 718 (Tribunal-LB) — Cited on revenue neutrality.

FULL TEXT OF THE JUDGMENT/ORDER OF CESTAT AHMEDABAD

The issue involved in the present Service Tax Appeal is to ascertain whether appellant is liable to pay Service Tax under Reverse Charge Mechanism (RCM) or otherwise in connection with External Commercial Borrowings obtained from Germany by Appellant. This Appeal is filed against impugned Order-in-Original No. VAD-EXCUS-001-COM-06-2021-22 dated 02-08-2021 passed by Principal Commissioner, CGST & Central Excise, Vadodara-I, wherein demand of Service Tax Rs. 2,96,70,103/- with interest and equal penalty is confirmed under RCM, for  Banking and other Financial Services in connection with External Commercial Borrowings obtained by Appellant from Lender Banks 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:-

2.1 The officers of Directorate General of Goods & Service Tax Intelligence, AZU, Ahmedabad Zonal Unit, gathered intelligence, that Appellant has not paid applicable amount of Service Tax under Reverse Charge Mechanism on all the services in the nature of Banking and other Financial Services under Section 68(2) of the Finance Act, 1994 read with Notification No. 30/2012-ST dated 20.06.2012 as amended. On completing the inquiry, officers of DGGI, Ahmedabad issued S.C.N. No. DGCEI/AZU/12(4)81/2017-18 dt. 24-12-2020 to the Appellant for FY 2015- 16 to FY 2017-18 [upto 30.06.2017], whereby the demand of Service Tax (including Cess) of Rs.2,96,70,103/- has been made, under Reverse Charge Mechanism, on taxable value of Rs. 21,54,01,570/-, being amount for Hermes Premium/ECA premium Tranche and Processing Fee paid by Appellant to the Lender Banks. The Appellant has objected said Show Cause Notice dated 24-12-2020 on various grounds. However, as the adjudicating authority, Principal Commissioner of CGST & Central Excise, Vadodara-I passed Order-in-Original No. VAD-EXCUS-001-COM-06-2021-22 dt 02-08- 2021 and the Order has confirmed total Service Tax demand of Rs. 2,96,70,103/- with interest and equal penalty. Therefore, Appellant is in Appeal before this Tribunal.

3. Shri Paresh M. Dave, Advocate and shri P. P. Jadeja, Authorised representative appearing on behalf of appellant submits that Hermes Premium is for Insurance Cover to the Exporter of Federal Republic of 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 foreign territory.

3.1 They also submitted that any such activity in public interest and undertaken as a statutory function is not service and such activities performed by a sovereign/public authority was not chargeable to Service Tax. Therefore, payment or charges paid to Federal Republic of Germany fall outside the purview of levy and collection of Service Tax, because such statutory charges and payments are not for any Service as contemplated under the Finance Act, 1994. Fees collected by Public Authorities for statutory functions/duties do not attract Service Tax. Appellant is not liable to Service Tax under RCM on the amount paid to HERMES in Germany for Insurance cover provided to lender Banks in Germany as Appellant is not a Service provider or Service receiver and both Service provider HERMES and service receiver Lender Banks are in Germany and hence Service Tax is not attracted for transactions under Finance Act 1994. Appellant was not discharging service tax liability as they believed that the amount paid to HERMES by lender Banks was included in loan amount and the Appellant is paying Interest thereon to Lender Banks. Hence, the amount of HERMES premium were considered as loan and Appellant treated amounts as non- taxable under RCM. Submissions are also made against Confirmation of Service Tax demand on complete revenue neutral situation, on time limitation to issue this SCN, being case of interpretation of provisions, extended period not invocable and Penalty also not sustainable in settled position of law. They placed reliance on the following Circular/Judgments on merits of the case:-

* Circular No.89/7/2006-ST dated 18.12.2006.

* Maharashtra Industrial Development Corporation 2014 (36) STR 1291.

* Electrical Inspectorate, Government of Karnataka 2008 (9) STR 494.

* Kerala State Electricity Board 2007 (8) STR 403.

* UTI Technology Services Ltd. 2012 (26) STR 147

* Mysore City Corporation 2010 (18) STR 127

* Chhata Sugar Company Ltd. 2004 (165) ELT 369 (SC).

3.2 They also submit that appellant has borrowed the funds from German Banks and for period prior to April 2015, appellant has entered into similar agreement with Lender Banks. The departmental Audit Officers have verified and audited the appellants Books of Account for period from February, 2011 to March, 2012; and thereupon raised objection about Service 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 appellants 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. There were thus genuine reasons for bonafide impression on Appellants part that service tax was not chargeable on Hermes premiums and ECA premiums. They submit that when all facts were within knowledge of Department, SCN has to be issued within normal time limitation under Finance Act 1994. Essential ingredient to invoke extended period is non-payment of Service Tax with intention to evade duty. There is nothing in this case to prove this. SCN dt. 24-12-2020 covering period for the FY 2015-16 to 2017-18(Upto June-2017) is barred by limitation of time for issuance of SCN for FY 2015-16 to 2017-18 (Upto June-2017). Invoking  extended period of limitation is incorrect and hence, invoking extended period of limitation deserves to be dropped. In their support they have relied upon the judgments of the Honble Supreme Court of India in H.M.M. Limited as reported 1995 (76) ELT 497 (SC) and Padmini Products and Chemphar Drugs & Linimentsas reported in 1989 (43) ELT 195 (SC) and 1989 (40) ELT 276 (SC)respectively. They also relied upon following decisions:-

* NCR Corporation India Pvt. Ltd. V/s. CST- 2021 (55) GSTL 6 (Tri.-Bang.).

* Ajit India Pvt. Ltd. V/s. CST, Mumbai 2018 (19) GSTL 659 (Tri.-Mumbai).

* Commissioner of C.Ex., Vadodara V/s. SOTEX 2007 (209) ELT 9 (S.C).

3.3 They also submit that Show Cause Notice and demand against an assessee would not be justified if assessee himself was entitled to avail Cenvat credit of disputed Service Tax demanded and assessee was in a position to utilize Cenvat credit for final outward transactions. It is also a settled legal position that Revenue cannot invoke larger period of limitation in cases involving Revenue Neutral Situation, because an assessee could never have any intent to evade payment of tax in revenue neutral situation. In present case, appellant has discharged substantial duty liabilities in cash during relevant period, and cenvat of entire amount of Service Tax under dispute could have been utilized by Appellant. They have relied upon the following case laws in support of their claim of Revenue Neutrality:-

* 2000 (119) E.L.T. 718 (Tribunal – LB) – JAY YUHSHIN LTD vs CCE

* 2010 (254) E.L.T. 628 (Guj.) – CCE vs INDEOS ABS LIMITED

* 2016 (339) E.L.T. 467 (Tri. – Ahmd.) -KANSAI NEROLAC PAINTS LTD vs CCE-I

* 2013 (290) E.L.T. 538 (Guj.) – CCE vs GUJARAT GLASS PVT. LTD

* 2014 (313) E.L.T. 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. 21,54,01,570/-] has been initially paid by Lender Banks to HERMES for obtaining insurance cover and then Lender Banks have reimbursed the said amount from Appellant, such situation of reimbursement of amount from Appellant is covered by the decisions in the case of  INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD by the Honble Delhi High Court and the Honble Supreme Court as reported in 2013 (29) S.T.R. 9 (Del.) and 2018 (10) G.S.T.L. 401 (S.C.) respectively.

3.6 They submitted that HERMES insurance covers are provided to the lender Banks i.e. Service is provided by HERMES of German Agency to lender Banks in Germany. Thus, the service provider and the service receiver are outside land mass of India and both are in Germany. Both are located in non taxable territory. The activity of actual service is provided out of India and the said services provided and received being out of India, activities are out of the scope of levy of Service Tax in terms of Section 64 of Finance Act 1994. They also relied upon decision of the Honble Gujarat High Court in case of 2020 (37) GSTL 3 (Guj) –  Sal Steel Ltd v/s UOI.

4. Shri Dinesh Prithiani, Learned Assistant Commissioner (Authorised Representative) appearing on behalf of the revenue reiterates findings in impugned Order-in-Original and submits that Appellant has paid amount in question to Lender Banks and have received services from foreign lender Banks. It is taxable under reverse charge mechanism under Section 66A of Finance Act 1944, which has rightly been confirmed by the adjudicating authority. He submits that classification of service is not required after 01-07-2012 and that obtaining insurance cover by the Lender Banks was mandatory pre-condition for allowing ECB. He submitted to uphold the impugned Order and dismiss the Appeal filed by the Appellant. He also relied upon the following decisions:-

* 2020 (32) G.S.T.L. 186 (Mad.) – BGR ENERGY SYSTEMS LIMITED vs CCE, CHENNAI

* 2016 (41) S.T.R. 689 (Tri. – Mumbai) – TATA STEEL LTD. vs CST, Mumbai- I

* 2014 (36) S.T.R. 808 (Tri. – Ahmd.) – GUJARAT BOROSIL LTD vs CCE, Surat

* 2019 (29) G.S.T.L. 322 (Tri. – Del.) – PARAMOUNT COMMUNICATIONS LTD. vs CCE, New Delhi-I

* 2019 (22) G.S.T.L. 55 (Tri. – Chennai) – S. GURUMURTHY vs CCE&ST, Chennai-III

* 2015 (324) E.L.T. 656 (S.C.) – STAR INDUSTRIES vs CC (IMPORTS), RAIGAD

* 2000 (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 other Financial Services under RCM. We find that the levy of Service Tax was on Taxable Services provided or to be provided at the material time and it was being collected from Service provider u/s 68(1) of Finance Act 1994 by Forward Charge and it was collected from Service Recipient under Reverse Charge u/s 66A of Finance Act 1994 read with Section 68(2) of Finance Act 1994 and  Notification No. 30/2012-ST dated 20.06.2012 as amended and Rule 2(1) (d) (i)(G) of the Service Tax Rules 1994. Appellant submitted that Service Tax is not recoverable from them under RCM on the charges of Hermes Costs/Premium, ECA Premium (Euler Hermes) and Processing Fees paid by them to Lender Bank in Republic of Germany from April 2015 to June 2017 under Section 73(1) of Finance Act, 1994. We find that Section 65(12) of Finance Act 1994 provided for Banking and Other Financial Services. This gives a list of services provided by banking company or financial institution and includes, amongst others, in clause (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. Taxable service as defined under section 65(105) (zm) of Finance Act 1994 means any service provided or to be provided to any person, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services. External Commercial Borrowing (ECB), is Expression used to refer to the Commercial Loans from overseas Lenders as finance or Loans. Lending of funds, is also included under Banking and Other Financial Services. Thus, Appellant has received servicesi.e.Banking and other Financial Services from Lender Banks in Federal Republic of Germany. For purpose of Service Tax levy, charges for providing such actual Taxable services recovered by Lender Banks from Assessee are gross amount charged by the Service Provider for such service provided or to be provided.

5.1 We find that Service Tax is levied on transactions of Taxable Services between Service Providers and Service Recipients under forward charge 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 ones 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 Federal Republic of Germany for granting guarantees for acceptance and examination of applications for ECA Policy and for conclusion on behalf of the Federal Republic of Germany as the insurer of and administration of ECA Policy (v) ECA Policy”- with regard to Loan Agreement is specific insurance agreement between Federal Republic of Germany represented by ECA, as insurer and Lender as insured for granting of guarantee. ECA Policy is to secure against economic and political risks affecting repayment of Loans and payments of all interest accruing on Loans by borrower under such Loan Agreements (vi) “ECA Premium” is premium charged by ECA to Lender Banks under ECA Policy for relevant Loan Agreement. (vii)ECA Premium- means the premium (including handling fees) charged by the ECA to the Lender under the ECA Policy for the relevant Loan Agreement. (Viii) ECA Premium Reimbursement Claim- means the Lenders claim under a Loan Agreement for reimbursement of the ECA premium. We find that Appellant was not discharging service tax as they believed that amount paid to HERMES was included in loan amount and Appellant is paying Interest to Lender Banks. HERMES premium were considered as loans and Appellant treated it as non-taxable under Service Tax. Appellant claims that demand is not sustainable, as Appellant is neither service provider nor service receiver. Service provider is HERMES and Service Receiver are Lender Banks. We also find from relevant Agreements that as per legal provisions in Federal Republic of Germany, the Lender Banks in Germany can not provide any such External Commercial Borrowing, unless Lender Bank has first obtained Insurance Cover from HERMES, an Agency 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 Lender Banks. As per Loan agreements, HERMES Premium amount is first paid by Lender Banks to HERMES and then reimbursed by Lender Banks from the Appellant.

However, without giving our final conclusions on merits of the case and on levy of Service Tax, we are prima facie of the view that in the facts of this case, if Appellant as a Borrower defaults in making repayment of the Loan Amount to Lender Banks, Insurance cover provided by HERMES to Lender Banks would operate in favour of Lender Banks. These facts are available on 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 borrowers 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 with their lenders, such lenders sanction ECBs subject to condition of payment of or reimbursement of Hermes premium along with payment of Management Fee and Commitment fee to the lenders. (iv) Hermes Guarantee or Hermes Cover is a taxable service provided by HERMES to foreign lenders for extending ECBs to assessee and for providing services, HERMES are charging from their lenders who ultimately charge Hermes Cost/premium from assessee, who is ultimate beneficiary of HERMES cover by way of getting ECBs. Therefore, as per O-I- O assessee cannot claim that they are not the recipient of service and service has occurred beyond land mass of India. We find that there is also no dispute on the facts that Appellant has paid the amount in question to Lender Banks, but, the said amount paid by Appellant to Lender Banks was for obtaining the Insurance cover from HERMES of Federal Republic of Germany. We also find that the levy of Service Tax under the Finance Act 1994 was on Taxable Services, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Thus, Service Tax was only on the Service by a person (i.e. the service provider) for another person (i.e. the receiver of service). Only two parties are recognized by Law in regard to service i.e. service provider and recipient of service. Appellant may be beneficiary of transaction between Insurer HERMES and Lender Banks. Appellant wanted Loans and Lender Banks have given desired loans to Appellant. Lender Banks have recovered their expenses from Appellant, which were incurred by Lender Banks for obtaining Insurance cover from HERMES of Federal Republic of Germany.

5.3 Before going into merits of the case, we also find that Appellant has objected Service Tax demand on various grounds including Time Limitation and Revenue Neutrality etc. Since, Appellant had opened their case with submission on time limitation, we also first examine issue of time limitation for demand. Appellant has vehemently submitted that extendedperiod of time limitation cannot be invoked in facts of this case. Demand of Service Tax in this case is for FY 2015-16 to 2017-18 [30-06- 2017] and SCN has been issued on 24-12-2020 invoking extended period u/s 73 of Finance Act 1994. We find that on page No. 5 of SCN dt. 24-12- 2020 it is reflected that during investigation, 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:

Appellant submit that entire demand is hit by limitation. Section 73(1) of Finance Act 1994, normally allows Central Excise Officer to issue SCN within thirty months from relevant date for demand of service tax, but in appropriate cases of fraud; or collusion; or wilful mis-statement; or suppression of facts; or contravention of provisions of rules with intent to evade payment of service tax, time limit of thirty months, gets extended to five years from relevant date. Appellant has elaborately submitted to demonstrate that an inquiry was initiated by DGGI, against Appellant vide letters dated 10.01.2018, 16.08.2018, 05.02.2019, 18.02.2019 and 28.02.2020 requesting them to submit information/details relevant in the matter such as details of ECBs availed and Appellant vide letters dated 25.01.2018, 12.02.2018, 17.04.2018, 07.05.2018, 30.08.2018, 12.10.2018, 13.02.2019 and 07.03.2020 submitted their reply along with details of ECBs availed and related documents viz. copies of agreements entered with lenders/arrangers along with details of various fees paid to them; details of the charges paid to overseas service providers for availing such ECBs or deducted by bank(s) or financial institution(s) as available with them for F.Y 2015-16 to F.Y. 2017-18 (uptoJune-2017). Appellant submit that due date for demanding Service Tax normally within 30 months is computed as under:-

Thus, that it is clear from the above table of due date for issuance of SCN under normal period of 30 months from relevant date has expired on 25-10- 2019, whereas this Service Tax demand SCN has been issued on 24-12- 2020 by invoking extended period of Five Years.

5.4 Appellant have borrowed such ECB from German Lender Banks in past prior to April 2015, under similar agreement with Lender 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 fee 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 appellants 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 Audit Officers, who verified and examined loan agreements dated January 7th/11th, 2011, had pointed out liability to pay Service Tax on Hermes premium and ECA premium trench, appellant would have discharged Service Tax on such elements and appellant would have taken credit of such service tax, as credit was availed for Management fees and Commitment fees for same loan agreements. These shows that Revenue officers were also of the view in 2012 that Service Tax is not applicable on the said HERMES Insurance cover and Hermes Premium etc. This proves genuine reasons for appellant to form a bonafide belief that Service Tax was not chargeable on such Hermes Premiums. Appellant has not discharged Tax on Hermes premium and ECA premium trench on bonafide belief that no service tax was chargeable on the same. Intention to evade payment of Service Tax on HERMES Premiums can not be alleged against Appellant under Reverse Charge, when the entire amount paid under RCM was available as Cenvat Credit which could have been illful for payment of excise duty on final products manufactured & cleared in market by the Appellant. As pointed out by Audit Officers, Appellant had paid Service Tax on Commitment Fees and on Management Fees, as calculated by audit officers and Appellants is paying Service Tax on Management fees and Commitment fees on each subsequent ECB. Show Cause Notice issued, invoking extended period of limitation, is not sustainable or justified in the facts of this case. We agree to such submissions on time limitation. We find that the adjudicating authority has not given sound reasons for rejecting this submission. Decisions relied upon on Time Limitation are like HMM Limited 1995 (76) ELT 497 (SC), Padmini Products and Chemphar Drugs & Liniments reported in 1989 (43) ELT 195 (SC) and 1989 (40) ELT 276 (SC) and others referred to in their submissions in this case. The law on invocation of extended period is well settled, as held by Honble Supreme Court in above landmark cases are applicable in the facts of this case. We have carefully considered the facts on this point and we find that the issue involved is of pure interpretation of legal provisions of levy of Service Tax under RCM on HERMES Insurance premium charged by Federal Republic of Germany to Lender Banks in Germany who have ultimately recovered it from Appellant and provided ECB to Appellant. In such 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 longer period is time barred. Department was aware on HERMES Insurance Premium charged by Lender Banks in ECB and no evidence produced by Revenue showing any suppression or mala fide intention by Appellant for non-payment of Service Tax with intent to evade payment of Service Tax and hence this Demand of Service Tax vide Show Cause Notice dated 24-12-2020 for the period of FY 2015-16 to FY 2017- 18[upto 30-06-2017] invoking longer period is definitely hit by limitation of time. No willful mis-statements or suppression of facts with intention to evade Service Tax is brought on record by the Revenue, extended period of time limitation is not invocable, in the facts of this case.

5.5 Similarly, on Revenue Neutrality, Appellant submitted that if they had paid Service Tax of Rs. 2.96 Crores, it would have been available as Cenvat Credit to them only and consequently they would have paid less duty from PLA when Appellant has paid duty from PLA/Cash Account for the amount of Rs. 17.43 Crores during the period in question. Government does not get any extra revenue in such a  Revenue Neutral Situation. It is settled law on Revenue Neutrality that there cant be willful suppression of facts or intent to evade payment of Service Tax when whatever Service Tax if paid by Appellant was available to themselves as Cenvat Credit. Plethora of Decisions relied upon by Appellant in their submissions in this case, on Revenue Neutrality and on Time Limitation support their case. The Order-in- Original has rejected submission on Revenue Neutrality with illogical, incorrect and unjustified observation that if argument of Revenue Neutrality as a permissible defense is accepted, entire scheme of payment of taxes on reverse charge basis will become irrelevant. However, the facts of payment of substantial amount of Excise duty from PLA during the period in question can not be ignored, while considering Revenue Neutrality. Revenue has not adduced any evidence to show that Appellant had not paid disputed Service Tax with intention to evade payment of Service Tax, when it was available as credit to Appellant themselves under RCM. We also find force in the submissions of Appellant on both these points. The demand of entire Service Tax is not sustainable on time limitation.

6. We do not find any necessity to go into details of the other points raised against Service Tax demand by Appellant, though such points may have force in favour of Appellant. Hence, as per our above discussion and findings, we hold that the Order dated 02-08-2021 is not sustainable on time limitation along with revenue neutrality. When the Service Tax demand is not sustained, consequential interest and penalty imposed does not survive. Order-in-Original No. VAD-EXCUS-001-COM-06-2021-22 dt. 02-08- 2021 deserves to be set aside and we do so. Appeal is allowed with consequential reliefs, if any, in accordance with the law.

(Pronounced in the open court on 17.03.2022)