Brief Facts of the Case s3

2 OIO NO. 15/STC/AHD/ADC(JSN)/2013-14

BRIEF FACTS OF THE CASE

M/s Adani Exports Limited (Now M/s. Adani Enterprises Limited), Adani House, Nr. Mithakhali Six Roads, Navrangpura, Ahmedabad (hereinafter referred to as 'the said assessee/the service recipient/service provider') is engaged in providing the services of “Clearing and Forwarding Agent”, “Business Auxiliary Service”, “Storage & Warehouse Service”, “Cargo Handling Service”, “Consulting Engineering Service”, “Port Service” & “Transport of goods by-Road Service” and were holders of certificate of Registration Form ST-2 under Section 69 of the Finance Act, 1994 (32 of 1994) having STC number AAFI5170KST001 dated 15.04.2004 for all the above services and having undertaken to comply with the conditions of the Service Tax Rules, 1994.

2. The CERA Audit, Ahmedabad conducted the audit of the said assessee and on the basis of the information furnished by the assessee, Julius Baer & Company, Switzerland was appointed as Lead Manager for the Foreign Convertible Currency Bond (FCCB) issue of US $ 3,80,00,000. The above lead manager has charged fees of US $ 10,45,000 @ 2.75% of 3,80,00,000 and credited the net proceeds of the issue of US $ 3,67,85,000 vide advice dtd. 21.09.2004. The assessee did not furnish the copy of sanction order, Bank remittance advice etc. The CERA audit further pointed out that since the Julius Baer & Company Switzerland does not have office in India, the person receiving the service i.e. M/s Adani Enterprises Limited, Ahmedabad was liable to pay service tax. However, it was confirmed by the assessee that no service tax has been paid; which had resulted in non-levy of service tax amounting to Rs. 49/56/435/-, due interest and penalty thereon.

3. The CERA audit party also observed that as per Section 65 of Finance Act, 1994, "Banking and other Financial Services" mean the following services provided by a banking company or a financial institution including a non-banking financial company which includes 'Merchant Banking Services' viz. merchant bankers, lead managers, underwriters etc. According to Rule 2(i)(d)(iv) of Service Tax Rules, 1994, in relation to any taxable services provided by a person who is non-resident or is from outside India, does not have office in India, the person receiving taxable service in India is liable for paying service tax.

4. On inquiry with the assessee, vide their letter dated 29.02.2008, the assessee informed that M/s Julius Baer & Co., Switzerland was appointed as lead manager for the FCCS issue; that they had charged fees of US $ 10,45,000 (2.75% of US $ 38,00,00,000) for the same, the assessee enclosed the copy of the letter of the said lead manager. The assessee further mentioned that as per guideline of RBI, the said money was parked outside India; that the services rendered by Julius Baer were received and consumed by the assessee outside India; that the provision of the erstwhile Rule 2(1)(d)(iv) of the Service Tax Rules 1994 would have been applicable, only if they had received the services in India; that as the services were received and consumed outside India by them and as the levy of service tax is based on the principle of the levy being a destination based consumption tax, the service rendered by Julius Baer in relation to the FCCB issue in Switzerland cannot be said to be received in India; that thus there exists no service tax liability on the company in relation to the money paid to Julius Baer in connection with the FCCB issue .

5. As per the rule 2(1)(d)(iv) of the Service Tax Rules, 1994 (prevailing during the period covered under this notice), the "person liable for paying service tax" means - in relation to any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India, the person receiving taxable service in India. As per .section 65(12) of the Finance Act, 1994, The Banking and Other Financial Services at the material time meant any service in relation to –

(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; (ii) Credit card services (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, but does not include cash management; (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; and, Other financial services, namely lending; issue of pay order, demand draft,_ cheque, letter of credit and bill of exchange; providing bank guarantee, overdraft facility,· bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts;

(b) foreign exchange braking provided by a foreign exchange broker other than those covered under sub-clause (a)

6. The definition of "Banking and other financial services", as defined under clause (12) of section 65 of the Finance Act, 1994 specifically includes services as merchant banking services in this category. The definition of "taxable service" given in Section 65(105)(zm) of the Finance Act, 1994 (prevailing during the period covered under this notice) covers "any service provided or to be provided to a customer, 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".

7. From the above it appeared that the service recipient had received taxable services of lead managers in India, in as much as the service recipient was situated and working in India. As the foreign lead managers i.e M/s Julius Baer & Co., Switzerland were non-resident or from outside India and did not have nay office in India, the service recipient was liable to pay service tax on gross amount of Commission paid by them as per the provision of the Rule 2(i)(d)(iv) of the Service Tax Rules, 1994. It further appeared that for the services of lead managers rendered during year 2004-05 the service recipient has paid total commission of Rs. 4,85,92,500/- (US $ 10,45,000 [1 US$ = Rs.46.50].

8. Further it appeared that, the assessee had contravened the provisions of :

a) Section 68 of the Finance Act, 1994 read with Ru!e 6 of the Service Tax Rules, 1994 in as much as they have failed to determine and pay the Service Tax totally amounting to Rs.48,59,250/-- + Education Cess of Rs. 97,185/- (Total Rs. 49,56,435/-) for the period from the period 2004-05; b) Section 75 of the Finance Act, 1994 in as much as they had failed to make the payment of interest payable on the service tax liability on the amount of service tax payable. c) Section 69 of the Finance Act, 1994 in as much as they had failed to obtain Service Tax Registration for the services received by them. d) Section 70 of the Finance Act, 1994 and Rule 7 of the Service Tax Rules, 1994·, in as much as they had failed to file prescribed service tax returns in form ST-3 showing the correct value of taxable service during the period under question;

9. All the above acts of contravention as discussed in above paras on the part of the service recipient, appeared to have been committed by suppression of the facts in as much as the service recipient had not disclosed the facts to the Central Excise / Service Tax department about non-payment of service tax on such amounts of commission paid to foreign lead managers during the period 2004-05. Therefore the said service tax not paid by them was required to be demanded under Section 73(1) read with Section 75 of the Finance Act, 1994 by invoking extended period of 5 years is as much as the said service recipient had suppressed the facts to the Department.

10. Therefore, M/s Adani Exports Limited (Now M/s Adani Enterprises Limited , Adani House, Near Mithakhali Six Roads, Navrangpura, Ahmedabad was issued a show cause notice no. STC-46/O&A/SCN/ADC/Adani/08 dated 04.09.2009 by the Additional Commissioner, Service Tax, Ahmedabad as to why:

(i) the services of foreign Lead Managers received by them should not be considered as taxable services under the category of “Banking and Other Financial Services” and why they should not be held as the “person liable for paying the service tax” as a person receiving taxable service in India as defined under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994;

(ii) the gross amount of Rs. 4,85,92,500/- paid by them to such foreign lead managers should not be considered as value of the said taxable services;

(iii) service tax amounting to Rs. 48,59,250/- should not be charged and recovered from them under Section 73(1) of the Finance Act, 1994;

(iv) Education cess amounting to Rs. 97,185/- should not be charged and recovered from them under Section 73(1) of the Finance Act, 1994;

(v) interest under Section 75 of the Finance Act, 1994 should not be recovered from them;

(vi) Penalty under Section 76 of the Finance Act, 1994 should not be recovered from them;

(vii) Penalty under Section 77 of the Finance Act, 1994 for the contravention of Section 69 & 70 of the Finance Act, 1994 read with Rule 4 & 7 of the Service Tax Rules, 1994 should not be recovered from them;

(viii) Penalty under Section 78 of the Finance Act, 1994 should not be imposed for suppressing and not disclosing the aforesaid value of the said taxable service before the Department with intent to evade payment of Service tax and Education Cess.

DEFENCE REPLY

11. The said assessee filed their reply dated October 16th, 2009, wherein they submitted as under : 11.1 That they deny the charges and allegations levelled in the Show Cause Notice and submit that they have not contravened the provisions of Act and/or Rules or any other provisions, whatsoever; that they say and submit that they have rightly not paid the amount of service tax on availment of the services of M/s. Julius Baer & Company, our Lead Manager for the Foreign Convertible Currency Bond (FCCB) issue of US$ 3,80,00,000 in Switzerland. Since there was no provision at relevant time for charging of service tax from recipient of service, liability of service tax will not be arisen in the eye of law. In the above circumstances, it is submitted that the impugned Show Cause Notice was bad in law and deserve to be dropped in the interest of justice.

11.2 No liability of service tax at service recipient in India in respect of services provided by service provider outside India prior to 18 th April, 2006.

11.3 It was submitted that whether service recipient is liable for payment of service tax on services received prior to 18-4-2006 and the service provider does not have business/office in India, the issue is now no more res integra. The Bombay High Court in the case of Indian National Ship Owners’ Association Vs. Union of India reported in 2009 (13) STR 235 held that before enactment of Section 66A, there was no authority vested by law in the hand of Revenue Authorities to levy service tax from a person receives services from Outside India. Till Section 66A was enacted, a person liable was one who rendered the service. In another words, it is only after enactment of Section 66A that services received from abroad by the person belonging to India are taxed in the hands of Indian recipients. In such cases, Indian recipient of taxable service is deemed to be service provider. Before enactment of 66A, there was no such provision in the Act and therefore, the Revenue Authorities hold no authority to levy service tax on services received prior to 18-4-2006.

11.4 That it was submitted that Section 64 of the Act provides that the Act applies to the services rendered in India except in the State of Jammu and Kashmir. Relevant extract of Section 64 of the Act which deals with the extent, commencement and application of the Act is reproduced hereunder:-

“64 (1) This chapter extends to the whole of India except the State of Jammu and Kashmir. …….. (3) It shall apply to taxable services provided on or after the commencement of this chapter”

11.5 That they say and submit that any attempt to tax and recover Service Tax on services received and consumed outside India for the period in dispute would not satisfy the basic requirement of territorial nexus between the right to tax and the event of taxation, moresoever in the period prior to 18th April 2006, when there was no charging section for levying Service Tax on services received from outside India. It is universally recognized that Service Tax is a destination based consumption levy in respect of which the taxing jurisdiction is conferred on the country within whose jurisdiction the consumption of the service occurs. This position is recognized and adopted by the CBEC in its Circular No. 56/5/2003 dated 25th April 2003 and by the Legislature in the Export of Services Rules, 2005. The services which are sought to be taxed are rightly taxable by the relevant countries within whose jurisdiction the consumption of the services occurs and not by the Indian Revenue Authorities.

11.6 As per the ratio of the judgment of the Hon’ble Supreme Court in State of Bombay vs. R.M.D. Chamarbagwala [1957 SCR 874], the proposed levy and recovery of Service Tax on services received and consumed outside India would be unsustainable on account of the lack of territorial nexus. It is settled law, inter alia, by the judgment of the Hon’ble Supreme Court in Haridas Exports vs All India Float Glass Manufacturers' Asso. [2002 (145) ELT 241], that where the applicability of a statute (like the Act in question) is specifically restricted to the territory of India not including Jammu and Kashmir, such statute can have no extra-territorial application, as there is in the Act no specific statutory provision or mandate conferring extra territorial jurisdiction.

11.7 Under Article 245 of the Constitution of India, while there is a power to make an Indian statute apply to persons, things and acts outside the territory of India, it is well settled that such an extra territorial application must be secured by a specific provision in the statute itself to this effect, and not otherwise. Moreover in the period prior to 18.04.2006, there also existed no charging section for the levy of Service Tax on services received from outside India.

11.8 That it is well settled that in the absence of any express provision providing for extra territorial application of the provisions of an enactment, no extra territorial jurisdiction can be inferred or presumed. In the instances where the Legislature has intended to make the provisions of an enactment applicable outside the jurisdiction of India, it has specifically conferred such powers by specific language and the specific provisions in the relevant enactment as for e.g. in, ‘The Income tax Act, 1961’, ‘The Indian Penal Code, 1860’, and ‘The Foreign Exchange Management Act, 1999’. It is submitted that any attempt to tax and recover Service Tax on services received and consumed outside India would not satisfy the basic requirement of territorial nexus between the right to tax and the event of taxation.

11.9 That it is submitted that Section 66A of the Act which is the charging section which provides for levying Service Tax on services received from outside India was introduced only w.e.f. 18.04.2006 and hence there can be no liability to Service Tax on the service recipient in respect of services received from a foreign service provider before such date as there existed no charging provision, authorizing such levy of Service Tax.

11.10 Thus, it was submitted that in light of the legal position set out above, there can be no levy of Service Tax on the on availment of the services of M/s. Julius Baer & Company, our Lead Manager for the Foreign Convertible Currency Bond (FCCB) issue of US$ 3,80,00,000 in Switzerland under the category of “Banking and Other Financial Services” for the period in dispute i.e. prior to the introduction of Section 66A of the Act.

12. No tax on services received outside India from Foreign Service Providers prior to 16.06.2005

12.1 That they paid fee/charges to Foreign Lead Manager to the FCCB issue outside India and they, in turn, paid the net proceeds of the said issue to us vide advise dated 21st September 2004, which is the period in dispute.

Legal position prior to 16.6.2005

The relevant extract of the Rule 2 (1) (d) (iv) may be reproduced hereunder as existed before 16.6.2005:-

“(d) ‘person responsible for paying Service tax’ means, -- (iv) in relation to any taxable service provided by a person who is a non-resident or is from outside India, does not have any office in India, the person receiving the taxable service in India.”

12.2 From a bare reading of Rule 2 (1) (d) (iv), it is clear that the taxable services provided by a person who is non-resident or is from outside India and who did not have any office, had to be received in India by a service recipient. Further, there was no provision in the Act which could levy tax on services received outside India. We had received the services outside India as the foreign agents had rendered the services as Lead Manager to the FCCB issue outside India. Therefore, Rule 2 (1) (d) (iv) is not applicable to us. Consequently, it was submitted that no Service tax is payable for the period prior to 16.6.2005.

12.3 Consequent to the amendments by the Finance Act, 2006, the CBEC had issued Circular F.No. B1 / 4 / 2006-TRU dated 19th April, 2006 clarifying the position in respect of certain amendments. The relevant paragraph is reproduced hereunder:

“4.2.3 In the Budget for 2006-07, Explanation to clause (105) of section 65 providing for charging of service tax on taxable services received from outside India has been omitted and for this purpose a new section 66A has been incorporated in the Finance Act, 1994. Section 66A is to be read with the Taxation of Services (Provided from outside India and Received in India) Rules, 2006. It may be noted that only services received in India are taxable under these provisions.”

12.4 That It is submitted that the test for the determination of receipt of services for the period in dispute is the physical receipt of services and that the service has been received by us in the present case outside India.

12.5 In this context, reference was also made to the judgment of the Hon’ble Delhi High Court in the case of Orient Crafts Ltd. vs. UOI reported in 2006(4) STR (81) Del, wherein the Petitioner as an exporter had availed the services of a commission agent situated in a foreign country for procuring business of export of goods from India to other foreign countries and the issue in question was the taxability of the services of the commission agent in India in the hands of the service recipient (‘Petitioner’). The Hon’ble High Court has in this background and in the context of Section 66A of the Act and the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 inter alia held as follows: “The Rules that have been framed by the Central Government make it absolutely clear that taxable service provided from outside India and received in India is liable to Service Tax. In the example given by the learned counsel for the Petitioner, there is no question on the service of a haircut having been received in India. … The issue whether the taxable service in the present case is “received in India” is still live before the statutory authorities and therefore we would not like to go into that issue at this stage.We do not find anything unconstitutional in this scheme of things. We would, however, make it clear that it is still open to the Petitioner to contend that he has not received the services of the Commission Agent in India but that it is a matter on merits and that can only be decided by the Assessing Officer or any Appellate Authority in the event that Petitioner is sought to be taxed on this aspect.”

12.6 That in India, the levy of Service Tax is treated as a destination based consumption levy in respect of which the taxing jurisdiction is conferred on the country within whose jurisdiction the consumption of the service occurs. This position is recognized and adopted by the CBEC in its Circular No. 56/5/2003 dated 25th April 2003, wherein the CBEC has clarified that Service Tax is ‘destination based consumption tax’. Further vide Instruction F. No. V/DGST/03/GEN/INS/01/2004, dated 17th August, 2004, the Ministry of Finance/The Central Board of Excise & Customs (CBEC), have clarified the issue as regards applicability of Service Tax in Jammu and Kashmir and reiterated the principle of Service Tax being a destination based consumption tax. The relevant portions of the said Instruction are as under:

“…The Central Board of Customs & Excise (CBEC), New Delhi vide Circular No. 56/5/2003, dated 25-4-2003 has clarified that Service Tax is a destination based consumption tax and the principle of consumption of services would determine the liability of Service Tax.

12.7 It was therefore, submitted that the allegations raised in the captioned Show Cause Notice were without any legal basis and that for the period in dispute i.e. prior to 18.04.2006, the location of the service recipient had no co-relation to the actual place of receipt of services from the Foreign Lead Manager for the FCCB issue for the purposes of Rule 2(1)(d)(iv) of the Rules. Therefore, it is an undisputed fact that the place of physical receipt of services from Foreign Lead Manager to the FCCB issue is outside India.

12.8 It was submitted that for the period in dispute if the services of a Foreign Service provider were received outside India by an Indian service recipient, there existed no liability to Service Tax on such Indian foreign recipient. Reliance in this regard is placed on the decision of the Hon’ble Bangalore Tribunal in Rubco Huat Woods Pvt. Limited vs. Commr. Of C.Ex Calicut reported in 2006 (4) S.T.R. 603, wherein it was held that as the services were rendered in Malaysia (‘outside India’) there could be no liability to Service Tax.

12.9 Further, reference was also made to the decision of the Hon’ble Mumbai Tribunal in Welspun Gujarat Stahl Rohren Limited vs. CCE, Vadodara reported in 2007 (5) S.T.R. 38 (Tri. - Mumbai), wherein the Hon’ble Tribunal has as regards the liability of foreign commission agents for services rendered outside India at the stay stage ordered waiver of pre-deposit and inter alia held that: “… we find that a strong prima facie case for waiver has been made out on merits on the ground that although Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, as it stood upto 16-6- 2005 defines the person responsible for paying Service Tax, in relation to any taxable service provided by a person, who is non-resident or is from outside India and does not have any office in India, as the person receiving taxable service in India, prima facie Service Tax can be levied only if the service is received in India while the agreements between the applicants herein and M/s. Aurohill Global Commodities Ltd., Cyprus and M/s. Narafoamkar Co. Iran, show that the companies abroad provided services of marketing and sale of goods produced by the applicants, in their respective countries, namely Cyprus and Iran, for which they get commission from the applicants. In other words, prima facie the services rendered are provided by the foreign companies in countries outside India and not in India.”

12.10 Further, in this regard, it has also been clarified by the Central Board of Excise and Customs vide its Circular No. 565/2003 dt. 25.04.2003 that Service Tax is a destination based consumption tax. Thus, no Service Tax can be levied on services received outside India for the period in question.

12.11 Reference was also made to the decision of the Commissioner of Central Excise (Appeals), Chennai in the case of In Re: Thyssen Krupp Jbm Private Limited reported in 2005 (180) E.L.T. 285 (Commr. Appl.), wherein the Commissioner has as regards the imposition of Service Tax on services provided outside the territorial jurisdiction of India, inter alia held as under:

“All the services were rendered beyond the territorial jurisdiction of India. The services were rendered in England where M/s. KCL is located. No tangible or intangible service has been rendered in India. Even the design of the product was not received by the appellant. In terms of Section 64 the levy of Service Tax as imposed in the Finance Act, 1994 extends to the whole of India except the State of Jammu & Kashmir. Therefore, any service rendered beyond the territorial jurisdiction of India is not amenable to Service Tax. This has been made clear by the Board while clarifying the services rendered by Market Research Agencies. To quote, “an issue has been raised whether Service Tax is payable in respect of services rendered to foreign clients in India and in respect of such services rendered abroad. It is clarified that Service Tax is payable on taxable services tendered in India, whether to Indian or foreign client. However, the services rendered abroad shall not attract Service Tax levy as Service Tax extends only to services provided within India”.

12.12 Thus, it was submitted that in the present case, as the services rendered by the foreign Lead Manager to the FCCB issue were at all times received by the service recipient outside India i.e. in foreign countries, there is no liability to Service Tax in terms of Rule 2(1)(d)(iv) of the Rules.

13.Demand barred by limitation

13.1 Without Prejudice to the aforesaid, it was submitted that the captioned Notice issued by the Department was time barred by limitation.

13.2 That the captioned Show Cause Notice seeks to invoke the extended period of limitation under the proviso to Section 73(1) of the Act. The captioned SCN has raised a demand for Service Tax not paid for the period upto 21st September 2004. It was submitted that the extended period of limitation can be invoked only when there was suppression of facts, willful mis-statement, collusion with an intent to evade the payment of tax. The extended period of limitation can be invoked only on those grounds which are specifically provided under the Statute. If the Department seeks to invoke the extended period of limitation on grounds other than those mentioned in the Statute, then such an invocation of extended period of limitation is bad in law.

13.3 That they say and submit that they vide theri Letter dated 29th February 2008, have duly pointed towards this issue before the Department that since the services were received and consumed outside India by us and as the levy of service tax is based on the principle of the levy being Destination based consumption tax, the service rendered by Julius Baer in relation to the FCCB issue in Switzerland cannot be said to be received in India.

13.4 In this regard it was submitted by the said assessee that the proviso to Section 73 of the Finance Act, 1994 is in pari materia to Section 11A of the Central Excise Act, 1944. Reference in this regard is made to the decision of the Bangalore Tribunal in Mahakoshal Beverages Pvt. Ltd. vs. Commissioner of Central Excise, Belgaum reported in 2007 (6) STR 148, wherein it has inter alia been held that: “The proviso to Section 73 of the Act was promulgated by Finance Act 2004 but adding proviso to Section 73 of the Central Excise Act, which is pari materia to Section 11A of Central Excise Act.” 13.5 In the facts of the present case, there was no liability to Service Tax as has been detailed above and hence there was no liability to pay Service Tax. In any event, there was no deliberate intention on our part in either not disclosing correct information or to evade the payment of any tax. There was no positive act our part to evade the payment of any Service Tax nor has any proof towards this end been adduced by the Revenue. A mere omission will not constitute suppression of facts and as we were of the bona fide belief that no Service Tax was liable to be paid in relation to the foreign Lead Manager to the FCCB issue categorized under Banking and Other Financial Services so received, and therefore, the longer period of limitation cannot be invoked in the facts of the present case.

13.6 In any case, it was submitted that there was doubt and uncertainty as regards the issue as to whether there was a liability to Service Tax during the period in dispute as there existed no charging section on the levy of Service Tax on services received from outside India and also in a situation where the services were received outside India. In this background, there can be no question of invoking the longer period of limitation. Reliance in this regard is placed on the decisions of Suthom Nylocots vs. Commr. Of Central Excise, Coimbatore reported in 2003 (161) ELT 287 and Mysore Paper Mills vs. Commissioner of Central Excise, Belgaum reported in 1997 (92) ELT 94 wherein it has been held that where the Department itself was in doubt, the longer period of limitation is not invokable.

13.7 Without Prejudice to the above, it was further submitted that they were always under a genuine bona fide belief that these activities were not liable to Service Tax. There was no deliberate intention not to disclose correct information or to evade payment of Service Tax, and hence, there arises no question of willful-misstatement as alleged by the Department vide the captioned Show Cause Notice.

It was submitted that as none of the conditions necessary for invoking the extended period of limitation are satisfied in the present case, the extended period of limitation cannot be invoked.

14.No penalty or interest leviable in the facts of the present case

14.1 It was further submitted that for the reasons set out hereinabove, the entire demand itself was unsustainable, as there can be no liability to Service Tax on us being a charging section for the levy of Service Tax on such services received from outside India and in light of the legal submissions set out hereinabove. Hence, the demand for penalty and interest therefore cannot sustain. It is settled law, inter alia, by the judgment of the Hon'ble Supreme Court in CCE vs. HMM Ltd. reported in [1995 (76) ELT 497 (SC)] that where the demand itself is unsustainable, the imposition of penalty cannot sustain.

14.2 No penalty was leviable

14.3 That without Prejudice to the above, it was submitted that there was no intention to evade payment of Service Tax. In such circumstances, the levy of penalty is clearly unsustainable. None of these aspects have been dealt with in the captioned Show Cause Notice. In this regard, they referred to the decision of the Hon’ble Supreme Court Tamil Nadu Housing Board vs. CCE reported in [1994 (74) ELT 9 (SC)] , wherein it was held that an intent to evade payment of tax is not a mere failure to pay the tax, it is much more. The person alleged to have evaded payment of a tax must be proved to be aware of the taxability of the transaction and must deliberately have avoided payment of the tax. The Hon'ble Supreme Court further held that the word evade in the context of the phrase 'intent to evade' means defeating the provisions of law of paying the tax, and it is made more stringent by the use of the word 'intent'. Thus, intent to evade payment of a tax is, in law, much more than a mere failure to pay the tax.

14.4 That it is settled law, inter alia, by the various judgments of the Hon'ble Supreme Court, that the burden of establishing intent to evade payment of a tax is that of the Department and must be established with cogent, positive evidence. It does not emanate from a mere preponderance of probability. In the present case, the Department has failed in bringing on record any positive evidence of intent to evade payment of Service Tax. Having failed to discharge its burden, the Department cannot place the onus of establishing the lack of intent to evade payment of tax. Thus it is submitted that in any event there was no intent to evade the payment of differential tax (even if liable), and hence there can be no levy of penalty.

14.5 That it was submitted that in a case where there was no mala fide intent to evade the payment of duty, no penalty should be levied in terms of Section 76 of the Act. Reliance in this regard is made to the decision in the case of Catalyst Capital Services vs. CCE, Mumbai reported in 2005 (184) ELT 34, wherein it has inter alia been held that: “It is contended on behalf of the appellants that there is no mala fide intention on the part of the appellants in making the late payment of Service Tax. There is also provision in the Finance Act for waiver of the penalty where sufficient cause is shown. As the appellants had already deposited the Service Tax and as there was no mala fide intention in making the delayed payment, the penalty imposed thereof i.e. Rs. 7,105/- is hereby set aside.”

14.6 Reliance in this regard is also placed on the case of Market Force Chennai Pvt. Ltd. vs. CST, Chennai reported in 2007 (8) STR 175(Tri-Chennai).

14.7 Therefore it was submitted that there has been no mala fide intent to evade the payment of duty and therefore the aforementioned cases will squarely apply to us. Hence no penalty in terms of Section 76 of the Act is leviable.

14.8 Without Prejudice to the above, it was submitted that Section 80 of the Act provides that "no penalty shall be imposed…" under Sections 76, 77, 78 or 79, if there was a reasonable cause for the failure of the assessee in complying with the relevant provisions. The said provision being constructed by the use of the word 'shall' is mandatory, and to consider the same.

14.9 That there was a bonafide doubt as to whether they were liable to pay Service Tax under the reverse charge mechanism, and therefore, there was a reasonable cause not to deposit Service Tax. We should therefore be entitled to the benefit of Section 80 of the Act and no penalty should be leviable. Reliance in this regard is placed on the case of ETA Engineering Ltd. vs. Commr. Of C.Ex reported in 2006 (3) S.T.R 429, it has inter alia been held that: “Since they were under the bona fide doubt regarding their activity whether covered by Service Tax or not, therefore, there was a reasonable cause on their part in not depositing the Service Tax in time. Therefore, we are of the view that notwithstanding anything contained in Sections 76 and 77 of the Finance Act, 1994, the appellants are entitled for the benefit of Section 80 of the Finance Act and accordingly, we hold that no penalty should be imposed on the appellants.”

14.10 Without Prejudice to the above, it was submitted that the issue, if at all, is an interpretational issue. The bona-fide interpretation was that it was not liable to Service Tax. The interpretation of the Department is that they are liable to Service Tax. It is settled principle in law that no penalty can be levied where there is an interpretational issue/ambiguity in the relevant provisions. In this context, we refer to the decision of the Hon’ble Tribunal in Fibre Foils Ltd. vs. Commissioner of Central Excise, Mumbai – IV reported in 2005 (190) E.L.T. 352 (Tri.- Mumbai). The relevant Para inter alia reads as follows: “…I am also of the view that penalty imposed upon the appellant is not justified as the issue involved is bona fide dispute about the interpretation of law.”

14.11 Under these circumstances, it was requested drop the proceedings initiated by the captioned SCN .

PERSONAL HEARING 15. In the personal hearing granted on 14.08.2013, the said assessee were represented by Shri Hardik Modh, Advocate and Shri Arijit Roy Chowdhury, Advocate who reiterated the submissions made in their written reply dated 16.10.2009.

DISCUSSIONS AND FINDINGS

16. I have carefully gone through the contents of the Show Cause Notice and the defence reply, relevant documents of the case, and written submissions of the said assessee.

17. I find that the issue to be decided in this case is whether the said service provider/the said service recipient, are liable to pay service tax under Rule 2(1)(d)(iv) of Service Tax Rules, 1994, on gross amount of Commission paid by them to their foreign based Lead Managers i.e. M/s Julius Baer & Co., Switzerland for the services received in India [ and who does not have a office in India], during the period of 2004-05, under the category of “Banking and Other Financial Services” as defined in Section 65(12) of the Finance Act, 1994 .

18. I find that vide instruction F.No. 275/7/2010-CX-8A, dated 30.6.2010 the Board (CBEC) had clarified that service tax on a taxable service received in India, when provided by a non- resident/person located outside India, would be applicable on reverse charge basis w.e.f 1.1.2005 and the ratio of judgment in M/s Indian National Shipowners Association case would not apply to such cases. However, it has now been clarified by the Board vide instruction F.No. 276/8/2009-CX8A dated 26.9.2011 that the appeals filed by the department before the Hon’ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005, have been dismissed recently subsequent to the issuance of above said instruction dated 30.6.2010. In view of the same the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e. the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position and rescinded the above referred instruction dated 30.6.2010.

19. I find from the table at para 2 of the show cause notice that the said service recipient had received services from his foreign based Lead Managers and paid commission to them during the F.Y. 2004-05. Thus, I find that the period of availment of service by the said service recipient were prior to the cut-off date of 18.4.2006. I further find that there is no allegation in the show cause notice that the services provided were after the cut-off date of 18.4.2006. Therefore, this is an open and shut case. Accordingly, I hold that the said payment pertains to the services received by the said service recipient is prior to 18.4.2006 and not after 18.4.2006. Thus, the demand of service tax of Rs.48,59,250/- is not sustainable. Consequently, the proposals for interest and penalty also do not survive. I observe that Circulars and instructions issued by the Board are binding on the departmental officers as has been held by the Hon’ble Supreme Court in the case of Ranadey Micronutrients Vs 1996(87)ELT19(SC) and Paper Products Ltd Vs CCE 1996(112)ELT 765(SC).

20. In view of the above, I pass the following order:

O R D E R

I drop the proceedings initiated against M/s Adani Exports (Now M/s Adani Enterprises Limited) initiated vide SCN F.No. STC-46/O&A/SCN/ADC/Adani/08 dated 04.09.2009 .

(J.S.Negi) Additional Commissioner, Service Tax, Ahmedabad.

F.No. STC-46/O&A/SCN/ADC/Adani/08 Dated 24.10.2013

M/s Adani Exports Limited (Now M/s. Adani Enterprises Limited), Adani House, Nr. Mithakhali Six Roads, Navrangpura, Ahmedabad

Copy to :

(i) The Commissioner, Service Tax, Ahmedabad (Attn : RRA Cell) (ii) The Assistant Commissioner, Service Tax, Division-II, Ahmedabad. (iii) The Superintendent, Service Tax, AR-VIII, Division-II, Ahmedabad (along with one extra copy of OIO to be served upon to the assessee and forward acknowledgement to this office). (iv) The Guard file.