Dishman Pharmaceuticals & Chemicals Ltd VERSUS C.S.T.-Service Tax – Ahmedabad

Service Tax Appeal No.11033 of 2013

(Arising out of OIA-13-2013-STC-SKS-COMMR-A-AHD dated 30/01/2013 passed by

Commissioner of Service Tax-SERVICE TAX – AHMEDABAD)

 

Dishman Pharmaceuticals & Chemicals Ltd

VERSUS

C.S.T.-Service Tax – Ahmedabad

 

APPEARANCE:

Shri R. Subramanya, Advocate for the Appellant

Shri Vijay G. Iyengar, Superintendent (AR) for the Respondent

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR

HON’BLE MEMBER (TECHNICAL), MR. RAJU

Final Order No. A/ 10238 /2023

DATE OF HEARING: 18.01.2023

DATE OF DECISION: 07.02.2023

RAMESH NAIR

The issue involved in the present case is that whether the service

received from International Finance Corporation, USA in connection with

extra commercial borrowing is liable to service tax or otherwise.

2. Shri R. Subramanya, learned counsel appearing on behalf of the

appellant at the outset submits that issue is no more under dispute in terms

of various following judgments and board circular:-

 CBIC Circular No.211/1/2019-ST dated 15.01.2019

 Circular No. 83/2/2019-GST-Central Tax dated 01.01.2019

 Circular No. 83/2/2019-GST [GSL/GST/B.24] (Gujarat) dated

07.01.2019

 PETRONET LNG LTD.- 2017 (52) STR 419 (Tri-Del)

 BALRAMPUR CHINI MILLS LTD.- 2018 (19) GSTL 653 (Tri-All)

 COASTAL GUJARAT POWER LTD.- 2019 (24)GST 572 (Tri-Mumbai)

 COASTAL GUJARAT POWER LTD.- 2019 (24) GSTL J172 (SC)

2.1 He submits that as per the IFC Act, any service provided by IFC is not

liable to any tax. This has been held by various judgments as cited above.

3. Shri Vijay G. Iyengar, learned Superintendent (AR) reiterates the

finding of the impugned order.

4. On careful consideration of the submissions made by both the sides

and perusal of records, we find that the issue in hand has been settled in

various judgments and subsequently the same was accepted by the revenue

by withdrawing appeal from Supreme Court in the case of COASTAL

GUJARAT POWER LTD (supra), the said judgment is reproduced below:-

23. The proposition in the impugned order that appellant is not

covered by immunity even if the providers were premised on the fiction

of Section 66A that the receiver of service is deemed to have rendered

the service. The inference of the adjudicating Commissioner is that if

the said service providers had an establishment or office in India, there

would have been an exemption to tax because the service rendered by

Asian Development Bank and International Finance Corporation are

exempt. It cannot be lost sight of that it is the service that is taxable

and, owing to its intangibility, the consummation of service is deemed

to be complete when a receiver and provider exist. The proposition of

the adjudicating Commissioner would create a new dimension to the

tax, viz., the geographical location of the provider, which is not

envisaged in Finance Act, 1994. The national treatment for service

rendered by Asian Development Bank and International Finance

Corporation is unconditional tax exemption but, according to the

adjudicating Commissioner, the national treatment is exemption

conditional upon discharge of threshold tax merely because the

provider is located outside the country. Section 66A has been legislated

in Finance Act, 1994 to accord national treatment to services provided

from outside after discharge of tax at threshold so that there would be

no distinction between service providers located within India and

outside India. The fiction of merging provider and receiver is a

legislative imperative as the provider based abroad is jurisdictionally

non-existent in the eyes of the sovereign legislature.

24. That Asian Development Bank and International Finance

Corporation are existing entities in the eyes of the sovereign legislature

cannot be in doubt in view of the legislation pertaining to these bodies.

Section 66A is a special provision to attract tax as a countervailing

measure to cover circumstances that general taxing provision, Section

66, does not encompass. The mechanics of implementation of the

special provision are embodied in the Rules that we have elaborately

discussed supra. We have inferred that the tax is restricted to

circumstances that do not admit to jurisdictional existence of the

provider. A legislation that admits to status, privileges and immunity of

providers within the territory of India stands on a better footing as

having jurisdictional presence than administratively ascertained

characteristics such as establishment and place of residence. Hence we

conclude that the Asian Development Bank and International Finance

Corporation do have an existence in India, even if not corporeally, by

legislative acknowledgement. The services rendered by them are not de

hors the provider as to require recourse to Section 66A to be subject to

taxation. It is Section 66 that is to be invoked.

25. Taking this conclusion forward, we do not perceive the need for a

separate exemption as the Agreement incorporated in the Schedule to

the two Acts specifically provide that

„The Bank shall also be immune from liability for the collection or

payment of any duty or tax.‟

and that

„The Corporation shall also be immune from liability for the collection or

payment of any duty or tax.‟

26. With the provider being not only immune from taxation but also

absolved of any obligation to collect and deposit any tax, there is no

scope for subjecting the recipient to tax in the absence of inclusion in

the definition of „person liable to pay tax‟ in Rule 2 of Service Tax

Rules, 1994. This would preclude tax on services rendered by the two

entities under Section 66 even if these were otherwise taxable and the

immunity does not have to emanate from the provisions of Finance Act,

1994 but from the statutes governing the Asian Development Bank and

the International Finance Corporation. The two statutes do not

predicate the immunities to the presence of the two entities in India but

to wherever they may be located in relation to tax liability in India.

27. As adduced supra while analyzing Section 66A of Finance Act,

1994, the fiction of taxable service is legislated and thereafter the

recipient is legislated as taxpayer. When the enactments that honour

international agreements specifically immunize the operations of the

service provider from taxability, a law contrary to that in the form of

Section 66A which legislates such operations into tax net will not

prevail.

28. In arriving at this interpretation, we are guided by two important

considerations both of which flow from the mandate to respect and

honour international commitments; more particularly when they have

force of law. We have already observed the mischief that would follow

to the principle of national treatment if we were to accept the position

taken by the adjudicating Commissioner. Our place in the comity of

nations is determined by our respect for commitments made at the

international negotiation tables. Compliance, as a signatory to

international treaties, conventions and agreements, has been the

subject of various disputes before the Supreme Court. In the initial

years, a strict view with Article 253 as the centre-piece was the trend

of judicial thinking. Thus the Hon‟ble Supreme Court was not much

convinced that the doctrine of „pacta sund servanda‟ could override the

constitutional prescription of legislating treaties into enactment for

acquiring force of law. In Maganbhai Ishwardas Patel v. Union of India

[1969 SCR (3) 254], it was held that

„the power to legislate lies with Parliament under entries 10 and 14 of

List I of Seventh Schedule. But making of law under that authority is

necessary when the treaty or agreement restricts the rights of citizens

or others or modifies the laws of the State. If the rights of the citizens

or others which are not justiciable are not affected, no legislative

measure is needed..‟

With the two Acts in place, there can be no doubt about that which will

prevail. The decisions in Kubic Dariusz v. Union of India [AIR 1990 SC

605 = 1990 (48) E.L.T. 17 (S.C.)] and Mackinnon Mackenzie v. Audrey

D‟Costa [(1987) 2 SCC 469] indicate the tendency to the alternate

approach of harmony with international law as the cornerstone of

administration when in conflict. In Jolly Verghese v. Bank of Cochin

[1980 SCR (2) 913], Justice V.R. Krishna Iyer speaking for the Bench

laid out the constitutional framework thus :

„India is now a signatory to this Covenant and Art. 51(c) of the

Constitution obligates the State to “foster respect for international law

and treaty obligations in the dealings of organized peoples with one

another.” Even so, until the municipal law is changed to accommodate

the Government what binds the court is the former, not the latter… …

From the national point of view the national rules alone count ….. with

regard to interpretation, however, it is a principle generally recognized

in national legal systems that, in the event of doubt, the national rule is

to be interpreted in accordance with the State‟s international

obligations.‟

In the evolution of judicial interpretation, the obligation of the State in

accordance with Article 51 has been held to render treaties and

agreements as binding. In the situation of Agreements having been

enacted to have force of law, there can be no doubt that the intent of

the those Agreements must prevail over an interpretation that begins

and end within the framework of a taxing statute.

29. In view of the references and conclusions above, we do not concur

with the need for a separate exemption as held in the impugned order.

The existing laws enacted by the sovereign legislature of the Union

suffice for the purpose of giving effect to Agreements. And to attain

that end, the taxing statute, if it offers the scope, must be so

interpreted. Confirmation of demands of tax, interest thereon and

imposition of penalties are without authority of law. Impugned order is

set aside with consequential relief.

Against the above decision of the tribunal, though the revenue had filed the

appeal before the Hon’ble Supreme Court but the same was withdrawn as

per the CBIC Circular No.211/1/2019-ST dated 15.01.2019 which is

reproduced below:-

Service Tax on Asian Development Bank (ADB) and International Finance

Corporation (IFC) — Applicability of

C.B.I. & C. Circular No. 211/1/2019-S.T., dated 15-1-2019

1. No. 354/321/2018-TRU

Government of India

Ministry of Finance (Department of Revenue)

Central Board of Indirect Taxes & Customs, New Delhi

Subject :

Applicability of Service Tax on Asian Development Bank (ADB)

and International Finance Corporation (IFC) – Regarding

Kind reference is invited to Circular No. 83/02/2019-GST, dated 1-1-2019

[2019 (20) G.S.T.L. C49] clarifying that that the services provided by IFC

and ADB are exempt from GST in terms of provisions of IFC Act, 1958 and

ADB Act. The exemption will be available only to the services provided by

ADB and IFC and not to any entity appointed by or working on behalf of A

DB or IFC.

2. It is hereby clarified that the said circular shall apply, mutatis mutandis,

to Service Tax also.

3. The appeal filed by the department in Supreme Court against the

CESTAT, Mumbai order dated 17-10-2016 in the case of M/s. Coastal

Gujarat Power Ltd. is proposed to be withdrawn.

4. Difficulty if any, in implementation of this Circular may be brought to

the notice of the Board.

5. In view of the above settled legal position, the service received from

IFC is not chargeable to service tax under reverse charge mechanism,

accordingly, the impugned order is set aside. Appeal is allowed.

(Pronounced in the open court on 07.02.2023 )

(RAMESH NAIR)

MEMBER (JUDICIAL)

(RAJU)

MEMBER (TECHNICAL)