By TIOL News Service

MUMBAI, APR 13, 2016: THE appellant had raised external commercial borrowings (ECB) in the form of foreign currency convertible bonds in the month of November 2006 and had appointed an agency to conduct such activity. The appellant entered into an agreement with M/s Jefferies International Ltd., in respect of the payments made and related expenses in respect of such raising of external commercial borrowings (ECB). Appellant paid the said Jefferies International Ltd. an amount towards the services rendered by them.

Revenue is of the view that the amount paid by the appellant to M/s Jefferies International Ltd. is liable to service tax under ‘Banking and other financial services' in terms of reverse charge mechanism.

The tax demand was confirmed by the CCE, Mumbai-V.

Aggrieved, the appellant is before the CESTAT.

It is submitted that the issue is now settled against the appellant by the Majority decision of the Tribunal in the case of Tata Steel Limited - 2015-TIOL-2464-CESTAT-MUM. However, the appellant pleaded that since the issue was being agitated and had to be settled by majority decision in November 2015, the penalty and interest needs to be set aside more so since there could not have been any malafide intention not to pay the tax.

The AR submitted that the matter is in favour of the department and produced a copy of the majority decision.

The Bench observed -

++ we find that the majority decision in the case of Tata Steel ltd. (supra) has settled the issue, wherein it has held that service tax liability under reverse charge mechanism arises on the person making the payment for the services rendered by an intermediary who helps in raising the ECB. In view of this we hold that the appellant has no case on merits. Respectfully following the said judgment of the Tribunal in the case of Tata Steel we hold that the service tax liability arise on the appellant in respect of the amounts paid to M/s Jefferies International Ltd. for raising the ECB.

++ since the amount of service tax liability gets fastened, consequential interest liability also arise on the appellant. Accordingly, we hold that the appellant is liable to pay interest on such amount of service tax liability.

++ as regards the plea of the appellant for setting aside the penalty imposed, on a specific query from the bench, it was stated that the appellant has not paid the entire amount of the service tax liability and the interest thereof. The appellant has only paid 50% of the amount of service tax liability. We find that the provisions of Section 80 cannot be invoked in this case as there being no discharge of service tax liability and interest thereof; the penalty imposed on the appellant needs to be upheld as there is no justifiable reason or cause shown for setting aside the penalties.

The appeal was rejected.

(See 2016-TIOL-874-CESTAT-MUM)