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.
- 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.
- Shri Vijay G. Iyengar, learned Superintendent (AR) reiterates the
finding of the impugned order.
- 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:-
- 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.
- 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.
- 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.‟
- 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.
- 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.
- 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.
- 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
- 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.
- It is hereby clarified that the said circular shall apply, mutatis mutandis,
to Service Tax also.
- 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.
- Difficulty if any, in implementation of this Circular may be brought to
the notice of the Board.
- 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)
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