To,sevakarahmedabad.nic.in/doc/cmmr/2013/02-2013.doc · Web viewHowever, Adani have not paid service tax on the value of commercial charges paid to the foreign service provider

F. No. STC/4-75/O&A/11-12.OIO in the case of M/s. Adani Enterprise Ltd.

BRIEF FACTS OF THE CASE

1 Intelligence gathered by the Directorate General of Central Excise Intelligence (here-in-after referred to as DGCEI), Ahmedabad Zonal Unit, Ahmedabad indicated that M/s Adani Enterprises Ltd. (herein after referred to as “Adani ”), having Centralized Service Tax Registration No. AABCA2804LST001, having registered office at Adani House, Nr. Mithakhali Circle, Navrangpura, Ahmedabad- 380 009 have not paid appropriate service tax on the ‘Banking and Other Financial Services’ received by them from Jefferies International Ltd, a private limited company incorporated under the laws of England and Wales and having its registered office at Bracken House, 1 Friday Street, EC4M 9JA, London, United Kingdom, the service providers who are located outside India for issue of Foreign Currency Convertible Bonds (FCCB) of US$ 250 million in the month of February, 2007. Adani has paid commercial charges to the aforesaid service provider who has provided service from outside India for the issue of the aforesaid FCCB as per the subscription agreement dated 19th January 2007 executed between them. The subscription agreement is relating to Adani Enterprise Limited U. S. $ 220,000,000/- 6 percent convertible bonds due 2012 (subject to an increase of up to an additional US$30,000,000/- in principal amount of such Bonds pursuant to an overallotment option). However, Adani have not paid service tax on the value of commercial charges paid to the foreign service provider on reverse charge basis as envisaged under Section 66A of the Finance Act, 1994 read with Taxation of Services (Provided from Outside India and Received in India) & Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. Accordingly, investigation was initiated. Adani was called to furnish information such as the name & address of the bank or financial institution who arranged for FCCB; copies of agreements entered with lenders / arrangers; details of arrangement fee, processing fee, agency fee, etc., paid to lenders / arrangers; details of service tax paid, if any vide DGCEI’s letter dated 21-08-2010.

2.1 Adani vide letter dated 30-08-2010 informed that M/s Jefferies International Ltd, Bracken House, 1 Friday Street, EC4M 9JA, London, United Kingdom (herein after referred as ‘Jefferies’) was the sole manager for the FCCB issue of USD 250 million. Adani have made payment of USD 5,00,000/- for the fees in foreign currency on 26 th

January, 2007. They have paid service tax on the same on 14 th May, 2007 along with the interest as shown below: -

Particulars Amount in `Fees USD 5,00,000 @ ` 44.2513 2,21,25,650Service Tax 27,08,180Interest for 95 days 94,527Total 28,02,707

2.2 Apart from the above, they have made the payment of service tax on the reimbursement of USD 9690 on 31st March, 2007 along with interest as under: -

Particulars Amount in `Fees USD 9690 @ ` 44.2513 4,28,795Service Tax @ 12.24% 52,485Interest for 44 days 822Total 53,307

2.3 Adani has not furnished copies the agreement entered with Jefferies. In order to verify the correctness of the service tax paid by Adani , they were asked to furnish copy of agreement entered with Jefferies and information as to whether CENVAT credit of service tax was taken or not.

2.4 Adani vide their letter dated 18-10-2010 furnished copy of ledger account of Jefferies. They have paid the service tax on the fees paid to Jefferies under reverse charge mechanism in terms of Rule 2(1)(d) of the Service Tax Rules, 1994 read with

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Section 66A of the Finance Act, 1994 and hence they have availed CENVAT credit of the said amount in their books of account.

2.5 As Adani failed to furnish copy of agreement entered with Jefferies for arranging FCCB, summon was issued to Shri Devang Desai, Executive Director and Group CFO vide letter dated 17-02-2011. Adani in their reply dated 19-02-2011 informed that Shri Devang Desai was out of station and further Shri Kaushal Shah is looking after day to day activities and on behalf of the company he will be appearing for any further information / explanation and recording statement, they therefore requested to dispense with the requirement of personal appearance of Shri Devang Desai. They also furnished copy of Form – 83 filed with RBI in connection with FCCB; copies of bank statement showing drawdown and details of commercial charges paid for the FCCB.

2.6 Adani did not furnish copy of agreement entered with Jefferies for availing FCCB. It was, therefore, they were summoned to appear along with the relevant documents vide summon dated 01-03-2011.

STATEMENT DATED 04-04-2011 OF SHRI KAUSHAL SHAH, GENERAL MANAGER (FINANCE) OF ADANI :

3.1 Shri Kaushal Shah, General Manager (Finance) of Adani in his statement dated 04-04-2011 inter-alia stated that FCCB amount of USD 24,40,00,000/- was credited to their ICICI Bank, Hong Kong account No. 899005000188 on 26-01-2007. Jefferies have retained remaining amount of USD 60,00,000/- from FCCB proceeds towards their fees and expenses to be paid to the lawyers, printers, and the travel and out of pocket expenses. Jefferies have charged professional fee of USD 5,00,000/- and for payment to the solicitors, lawyers and other expenses USD 4,20,000/-. In all Jefferies have charged USD 9,20,000/- towards professional fee and other expenses. This amount was deducted from their FCCB proceeds. They have also produced a copy of bill No. 51 dated 26-01-2007 raised by Jefferies for USD 5,00,000/- towards underwriting / professional / advisory services. From the retention money of USD 60,00,000/-, Jefferies have deducted fees and expenses of USD 9,20,000 and the remaining amount was refunded to them. They received refund of USD 5,00,000/- on 15-02-2007, USD 80,000/- on 23-04-2007 and USD 45,00,000/- on 01-06-2007. Jefferies have remitted these amounts to their account No. 899005000188 in ICICI Bank, Hong Kong.

3.2 On being asked to produce copy of agreement entered with Jefferies, Shri Kaushal Shah stated that they are not in a position to produce the copy of the agreement entered for this purpose because the file relating to FCCB is not traceable in their office.

STATEMENT DATED 26-08-2011 OF SHRI DEVANG DESAI, EXECUTIVE DIRECTOR & CFO OF ADANI :

4.1 A statement of Shri Devang Desai, Executive Director & CFO of Adani was recorded on 26-08-2011 which is reproduced herein below:

“Question - 1: How long have you been working in Adani Enterprises Ltd? What is your position and responsibilities?

Answer - 1: I state that I am serving in Adani Enterprises Limited, Adani House, Nr. Mithakhali Six Road, Navrangpura, Ahmedabad Ahmedabad – 380 015 for the last fifteen years. At present I am working as Executive Director & CFO. I am looking after all operations relating to accounts, finance and taxation matters.

Question - 2: Please go through statement dated 04-04-2011 of Shri Kaushal G. Shah, General Manager (Finance) of your company?

Answer - 2: I have gone through the statement dated 04-04-2011 of Shri Kaushal Shah. I fully agree with the content of the statement. In token of its agreement, I put my dated signature.

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Question - 3: Have you brought documents called for vide this office’s summon dated 16-08-2011?

Answer - 3: I state that this issue being five years old, copy containing agreement entered for availing FCCB is missing. We could not trace the same.

Question - 4: Please peruse the copy of agreement dated 19-01-2007 entered with Jefferies International Ltd? What was the amount of fees payable as per this agreement?

Answer - 4: I have perused the copy of agreement dated 19-01-2007. As per para 12.1 of the agreement, it appears that Jefferies were to be paid on the closing date and each option closing date, a combined management and underwriting commission equal to 2% of the principal amount of the Firms Bonds issued. Apart from the above, other fees as mentioned at para 12.4 were payable.

Question - 5: Please peruse copy of letter dated 05-08-2011 received from Jefferies International Ltd, London. How much was the fees and related expenses deducted by Jefferies ? What was the amount credited from FCCB proceeds in to your account?

Answer - 5: I have perused letter dated 05-08-2011 of Jefferies International Ltd., London. We were paid USD 244 millions from FCCB proceeds after deduction of fees and expenses as per the agreement.

Question - 6: Why was service tax not paid on the value of fees and expenses within the stipulated time?

Answer - 6: I state that as per the understanding with Jefferies , the amount of USD 6,000,000 was to be treated as retention. After final negotiation, accounts were to be settled. Accordingly, Adani Enterprises borne expenses of USD 5,00,000/- and paid service tax on 14-05-2007 along with interest. I further state that major chunk of this funds were to be used in our overseas operations through Adani Global PTE Ltd, Singapore. Accordingly, it was decided that since the funds were to be mainly used for the benefit of overseas projects, Adani Global PTE Ltd. was the principal beneficiary and therefore rightfully liable to pay charges to Jefferies . Thus, fee of USD 45,00,000/- were paid by Adani Global PTE Ltd, Singapore to Jefferies . Since payment was made by Adani Global PTE Ltd, Singapore, Adani Enterprises did not pay service tax on it.

Question - 7: Was Adani Global PTE Ltd, Singapore co-signatory of FCCB proceedings?

Answer - 7: I state that to the best of my knowledge, Adani Global PTE Ltd,, Singapore was not a co-signatory in the agreement with Jefferies .

Question - 8: How can liability to pay service tax be shifted to an entity which is not a co-signatory?

Answer - 8: We had no intention to shift the liability to pay service tax on any other entity. As per our understanding, Adani Enterprises Ltd made the payment of service tax on the fees charged by Jefferies . However, I state that in view of the ongoing inquiry by your office and on the advice of our legal consultants, we have made payment of service tax of ` 4,88,400/- along with interest of ` 2,37,662/- on 14-03-2011 and service tax of ` 2,43,73,616/- along with interest of ` 1,46,56,890/- on 27-07-2011.

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Question - 9: What are the functions of Adani Global PTE Ltd.? What are your functions therein?

Answer - 9: I state that Adani Global PTE Ltd, Singapore is an independent step down subsidiary of Adani Enterprises Ltd., Ahmedabad. It carries on trading operations of various commodities such as coal and agro products. I do not have any role in Adani Global PTE Ltd. Jefferies International Ltd has mentioned my name in their invoice dated 26-07-2007 for identification purpose because I have been handling this issue on behalf of Adani Enterprises Ltd, Ahmedabad.”

4.2 Shri Devang Desai, confirmed that Adani entered into agreement with Jefferies for raising FCCB of USD 250 million. Adani were paid USD 244 millions from FCCB proceeds after deduction of USD 6 million towards fees and expenses as per the agreement. Adani Global PTE Ltd, Singapore was not a co-signatory of the FCCB agreement. It is a step down subsidiary of Adani . He had handled the issue of FCCB on behalf of Adani and for this reason Jefferies have quoted his reference in their invoice.

INFORMATION received from Jefferies :

5.1 `Jefferies vide letter dated 11-07-2011 sent copy of subscription agreement dated 19th January, 2007 entered with Adani relating to the issue of FCCB of USD 220,000,000, 6% convertible bonds due 2012. The agreement also provides for an increase of USD 30,000,000 in principle amount of bonds pursuant to an over allotment option. Jefferies have also sent a copy of relevant Invoice No. 51 dated 26-06-2007 for recovery of “Transaction Fee” of USD 4,500,000 addressed to “Attn: Devang Desai, Adani Global PTE Ltd, 3 Shenton Way, 19-08 Shenton House, Singapore 068805”, which is in accordance with the above terms of agreements.

5.2 Jefferies vide their letter dated 05-08-2011 informed DGCEI that the net subscription money collected for Adani Enterprise Limited was $ 244 million after the deduction of fees for JIL (Jefferies International Limited) and related expenses of $ 5 million and $ 1 million respectively. It is further confirmed that they have not found anything in their records which amends Clause 13.2 of the subscription agreement. However, as per their records, an invoice was raised in June, 2007 on Adani Global PTE Limited of $ 4.5 million and upon settlement of this invoice; they have released an additional $ 4.5 million to Adani Enterprise Limited in the same month.

EXAMINATION OF RECORDS/INFORMATION FURNISHED BY ADANI :

6.1 Scrutiny of information and documents received from Adani and Jefferies revealed that Adani had entered into Subscription Agreement with Jefferies for raising USD 220 million 6% convertible bonds due in 2012 subject to an increase of up to an additional USD 30 million in principal amount. Convertible bonds were to be listed on the official list of Singapore Exchange Securities Trading Limited. Accordingly, subscription amount of USD 250 million was raised.

6.2 In the said Subscription Agreement, the provisions relating to commissions, fees and expenses payable and payment for bonds were as under: -

1. Commission, Fees and Expenses Payable: As per para 12.1 of the agreement, a combined management and underwriting commission equal to 2% of the principal amount of the firm bonds issued is payable. At 12.2 it is specified that the underwriting commission constitutes 2% of these commissions. Other expenses as specified in para 12.4 are to be reimbursed to Jefferies .

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2. Payment for Bonds: As per para 13.2, Jefferies will, on closing date i.e., 26-01-2007, pay or cause to be paid to Adani in respect of its commitment the net subscription moneys for the Firm Bonds and the Optional Bonds, if any, being the Issue Price less the amounts specified or referred to in Clause 12 (Commission, Fees and Expenses) as payable to Jefferies . Jefferies shall make payment by the Common Depository in USD to such account in London as shall be notified by M/s Adani.

6.3 From the information furnished by Adani , it is found that Jefferies have made payment of USD 244 million on 29-01-2007 into current account No. 899005000188 of M/s. ICICI Bank, Hong Kong of Adani after deducting their commission and other fees and expenses in accordance with Para 12 of the agreement. Jefferies vide their letter dated 05-08-2011 have confirmed that the net subscription money collected for Adani was USD 244 million after deduction of fees and related expenses of USD 5 million and USD 1 million respectively. Subsequently an amount of USD 5,80,851/- was refunded by Jefferies to Adani . Further amount of USD 334,459/- was paid towards legal fees, which was not taxable at that point of time. Therefore, it could be concluded that amount of USD 5,084,690/- deducted by Jefferies were towards their commission, fees and expenses and therefore this amount should become the taxable for payment of service tax under Section 66A of the Finance Act, 1994. 6.4 As per the provisions of Section 67 of the Finance Act, 1994, the gross amount charged by the service provider for the services provided should be the taxable value for payment of service tax. In explanation (c) appended to this section, it is clarified that gross amount charged includes deduction from account. Therefore, Adani should have paid service tax on the value of USD 5,084,690/- being the gross amount charged by Jefferies for providing of service which is appropriately classifiable under Banking and Other Financial Services.

6.5 Notwithstanding the above facts, in order to evade payment of service tax, Adani have mis-declared the value of commission, fees and expenses paid to Jefferies thereby suppressing the factual information from the department. Adani had meticulously premeditated a conspiracy with the sole intention to evade payment of service tax on the value of fees paid by them. They hid the facts of deduction of fees of USD 5 million on 29-01-2007 from the FCCB proceeds by Jefferies. Instead they mis declared to the department asserting that they had paid fees of USD 5,00,000/- only.

6.6 In order to justify their ulterior motive and to camouflage the amount of actual fee paid by Adani, Adani arranged for payment to Jefferies an amount of USD 4.5 million from the account of Adani Global PTE Ltd, Singapore, which is their step down subsidiary, in June, 2007. On receipt of payment of USD 4.50 million from Adani Global PTE Ltd, Singapore, Jefferies had paid an equivalent amount to Adani . The amount of USD 4.50 million, so received from Jefferies, was claimed as refund of fee retained by Jefferies. Thus, Adani falsely claimed that they got the refund of the fee retained and they are not liable to pay service tax on this amount.

6.7 Adani orchestrated fake excuse to keep this transaction under wrap. Therefore when they were asked to produce the copy of subscription agreement entered for FCCB subscription, Adani resorted to plea that the copy of agreement is not traceable. They reiterated their contention that they had paid fee of USD 5,00,000/- to Jefferies. As per sub-rule (3) of Rule 5 of the Service Tax Rules, 1994, every assessee shall preserve all the records in relation to providing of any service, whether taxable or exempted, receipt or procurement of input services, all other financial records maintained by him in the normal course of business at least for a period of five years immediately after the financial year to which such records pertain.

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6.8 It was also ascertained that the gross amount of USD 6 million deducted by Jefferies from the subscription amount towards commission, fees and expenses to Jefferies were not reflected in their ledger accounts as well as in their profit & loss accounts. Adani have produced ledger account showing that they paid commission, fees and expenses amounting to USD 920,000 only. Further Adani avoided furnishing copy of subscription agreement entered with Jefferies pleading that the same is not traceable in their office.

6.9 Suspecting foul play, DGCEI extended investigation to Jefferies and called for copy of subscription agreement and information relating to payment of fees. Jefferies have sent execution copy of subscription agreement dated 19 th January, 2007 entered with Adani relating to the issue of FCCB of USD 250 million. In the said agreement it is clearly mentioned that combined management and underwriting commission equal to 2% i.e., USD 5 million is payable. Jefferies have further stated that Adani was paid net subscription amount of USD 244 million after deduction of fee of USD 5 million and USD 1 million for other expenses. Besides, they have also sent a copy of their invoice No. 51 dated 26-06-2007 for recovery of “Transaction Fee” of USD 4,500,000 addressed to “Attn: Devang Desai, Adani Global PTE Ltd, 3 Shenton Way, 19-08 Shenton House, Singapore 068805”.

6.10 On being asked to clarify as to whether Adani Global PTE Ltd is a co-signatory of the subscription for FCCB, Shri Devang Desai, Executive Director and CFO of Adani stated that Adani Global PTE Ltd was not co-signatory. FCCB was raised by Adani and Adani had received subscription amount of USD 244 million after deduction of fees and other expenses amounting to USD 6 million. Thus, Adani being the beneficiary of FCCB, it is the statutory obligation of Adani to discharge their service tax liability as a beneficiary or borrower.

6.11 After unraveling of their intricate web of meticulously planned cross transaction by investigation extending to foreign territory, Adani have admitted their lapses and paid (1) service tax of ` 4,88,400/- along with interest of ` 2,37,662/- on 14-03-2011 and (2) service tax of ` 2,43,73,616/- along with interest of ` 1,46,56,890/- on 27-07-2011.

PROVISIONS OF BANKING AND OTHER FINANCIAL SERVICES: -

7.1 As per Section 65(12) of the Finance Act, 1994, "Banking and other financial services" means, the 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 merchant banking services; asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, but does not include cash management; 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; banker to an issue services; and 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, over draft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts.

7.2 Section 65(105) (zm) of the Finance Act, 1994 defines taxable service of banking and other financial service as the service 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.

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7. 3 The scope of banking and other financial services was expanded with effect from 10-09-2004 with the inclusion of lending services, CBEC Circular No. 80/10/04 dated 17-09-2004 provided the following clarification:-

“The existing taxable service i.e., ''banking and other financial services'', has been expanded both in terms of its coverage and the types of service providers. Financial services would now also include specified financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit, bill of exchange, providing a bank guarantee, overdraft facility, bill discounting, safe deposit lockers, or safe vaults and operation of bank accounts. The interest amount would, however, remain excluded from the purview of service tax. In addition to banking company, financial institution including a non-banking financing company, body corporate and any other commercial concern providing financial services will also be covered”.

PROVISIONS RELATING TO LIABILITY TO PAY SERVICE TAX ON RECIPIENT IN INDIA:

8.1 The provisions of service tax for charging service tax on the recipient of services is specified under Section 66A of the Finance Act, 1994 with effect from 18-04-2006. As per this section, if service provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, then such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and service tax is to be paid by the service recipient in India.

8.2 Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 notified with effect from 19-04-2006 has also defined the taxability of import of services for the purpose of service tax. Banking and Other Financial Services defined under Section 65(105)(zm) of the Finance Act, 1994 is covered under Rule 3 (iii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 i.e., banking and other financial services is taxable at the hands of recipient in India if the same is received for use in relation to business or commerce.

8.3 The clause (iv) of Rule 2(1)(d) as amended vide Notification No. 10/2006-Service Tax dated 19th April, 2006 defines the “person liable for paying service tax” as,

“ in relation to any taxable service provided or to be provided by any person from a country other than India and received by any person in India under section 66A of the Act, the recipient of such service;”.

8.4 Liability to pay service tax is cast on the service recipient in respect of any taxable service provided by a person who is a non-resident or is from outside India, and does not have any office in India, with effect from 01-01-2005 vide Notification No. 36/2004-Service Tax dated 31-12-2004. The legal provisions with effect from 01-01-2005 make it abundantly clear that Adani are required to pay service tax on the upfront fee, arrangement fee, professional fee, legal services fee, commitment fee, etc., paid by them to their agents / arrangers / lead managers under Banking and other financial services.

8.5 The provisions of service tax for charging service tax on the recipient of services is specified under Section 66A of the Finance Act, 1994, with effect from 18.04.2006. As per this section, if service provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, then such service shall, for the

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purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and service tax is to be paid by the service recipient in India.

8.6 Banking and Other Financial Services defined under Section 65(105)(zm) of the Finance Act, 1994 is covered under Rule 3 (iii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Similarly Legal Consultancy Services (other than immovable property related services) defined under Section 65(105) (zzzzm) of the Finance Act, 1994 is covered under Rule 3 (iii) of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The aforesaid services are taxable service if the same are received by a recipient located in India for use in relation to business or commerce.

RESULTS OF INVESTIGATION:

9.1 In view of the provisions of the Section 66A of the Finance Act, 1994 read with the Taxation of Services (Provided From Outside India and Received in India) Rules, 2006 and Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, if any service is received in India from a Foreign Service provider, the service tax is leviable on such services and service tax is to be paid by the service receiver as if the recipient had himself provided the service in India.

9.2 As per the information received from Adani and Jefferies, Jefferies had deducted an amount of USD 6 million towards commission, fees and expenses from the subscription amount of USD 250 million. This amount includes legal fees of USD 334,459, which was not taxable in the year 2006-07 and an amount of USD 580,851 which was refunded to Adani after settlement of their account. The above said two amounts are not chargeable to service tax. Adani should have paid service tax on the remaining amount of fee deducted by Jefferies in view of the expressed provisions of Section 67 of the Finance Act, 1994. However, they had paid service tax on the value of USD 509690 i.e., service tax of ` 27,60,664/- & interest of ` 95,349/- on 14-05-2007.

9.3 Further on account of detailed investigation carried out by DGCEI, Adani have admitted that they have paid commission and fees amounting to Rs. 20,31,21,051/- (equivalent to USD 45,90,200) on which they did not pay service tax at the material point of time. They, in fact, suppressed this fact from the department. However, during the course of investigation, they admitted their lapses and paid (1) service tax of Rs. 4,88,400/- along with interest of Rs. 2,37,662/- on 14-03-2011 and (2) service tax of Rs. 2,43,73,616/- along with interest of Rs. 1,46,56,890/- on 27-07-2011. In all service tax of Rs. 2,48,62,016/- (which includes service tax of Rs. 2,43,74,526/- and education cess of Rs. 4,87,491/-) and interest of Rs.1,48,94,552/- stands recovered from Adani . Details of service tax and interest paid is furnished in ANNEXURE – A. The above said amount of service tax, and interest paid by Adani during the course of investigation is required to be confirmed and appropriated against their liability to pay service tax, as elaborated supra.

CONTRAVENTIONS OF PROVISIONS OF THE FINANCE ACT, 1994:-

10.1 Section – 67 of the Finance Act, 1994 read with Service Tax (Determination of Value) Rules, 2006 provides that the value of the taxable Service shall be the gross amount charged by the service provider for such service rendered by them. Thus, the entire amount charged by them for providing taxable services would be liable to be charged for service tax. Adani have contravened the provisions of the above provisions.

10.2 Section 68 of the Finance Act, 1994 provides that every person providing taxable service to any person shall pay service tax at the specified rates and in such

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manner and within such period as may be prescribed. Section 68(2) of the Finance Act, 1994 stipulates that all the provisions of this chapter shall apply to such persons as if he is the person liable for paying the service tax in relation to such services. Rule 6 of the Service Tax Rules, 1994 stipulates that service tax shall be paid to the credit of the Central Government by the 5th of the month immediately following the calendar month, in which the payments are made, towards the value of taxable services. Adani have contravened the provisions of the above provisions.

10.3 Section 70 of the Finance Act, 1994, provides that every person liable to pay the service tax, shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed. Rule 7 of the Service Tax Rules, 1994, prescribes that every assessee shall submit a half-yearly return in form ST-3 or ST-3A, as the case may be, along with a copy of the form TR-6, in triplicate for the months covered in the half-yearly return. Further sub-rule [2] thereto also states that “every assessee shall submit the half yearly return by the 25th of the month following the particular half-year. Adani have contravened the provisions of the above provisions.

10.4 Section 83: Provisions of section 14 of the Central Excise Act, 1944 as made applicable to service tax matters vide Section 83 of the Finance Act, 1994 makes it obligatory on the part of the person summoned to produce the relevant documents. As per sub-rule (3) of Rule 5 of the Service Tax Rules, 1994, every assessee shall preserve all the records in relation to providing of any service, whether taxable or exempted, receipt or procurement of input services, all other financial records maintained by him in the normal course of business at least for a period of five years immediately after the financial year to which such records pertain. Adani have contravened the provisions of the above provisions. 11. It thus appears that Adani have not paid service tax and education cess by way of willful suppression of facts and in contravention of provisions of Finance Act, 1994 and the Rules made there-under relating to levy and collection of Service Tax with intent to evade payment of Service Tax. Therefore the service tax is recoverable from them by invoking extended period of five years as per first proviso to sub-section (1) of Section 73 of the Finance Act, 1994 along with interest under section 75 of the Finance Act, 1994.

12. It also appears that Adani was liable to pay due service tax but did not pay the same on the services received by them and thus contravened the provisions of Section 68 of the Finance Act, 1994 and hence rendered themselves liable to penal action under Section 76 of the Act, ibid. The service tax was not paid by them by way of suppression of facts and contravention of the provisions of Finance Act, 1994 relating to service tax and rules made there-under with intent to evade payment of service tax. It therefore, appears that Adani is liable to penal action under Section 78 of the Act, ibid. Further Adani had not declared the correct amount of service charges paid to the Foreign Service providers to the department; hence Adani is also liable to penalty under Section 77 of the Finance Act, 1994.

13. In view of the above a show cause notice answerable to the Commissioner, Service Tax, Ahmedabad, was issued under F. No. DGCEI/AZU/36-69/2010-11 dated 12/09/2011 by the Additional Director General, DGCEI, Ahmedabad zonal unit to Adani Enterprises Ltd., Adani House, Nr. Mithakhali Circle, Navrangpura, Ahmedabad- 380 009 calling upon Adani to show cause as to why:-

(i) Service Tax amounting to Rs. 2,48,62,016/- (which includes service tax of Rs. 2,43,74,526/- and education cess of Rs. 4,87,491/-) (Rupees two crore forty eight lakh sixty two thousand sixteen only) should not be

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demanded and recovered from them under sub section (1) of section 73 of the Finance Act, 1994;

(ii) The service tax amounting to Rs. 2,48,62,016/- (which includes service tax of Rs. 2,43,74,526/- and education cess of Rs. 4,87,491/-) paid by them during the course of investigation should not be appropriated against the service tax liability as mentioned at (i) above.

(iii) Interest at the appropriate rate should not be demanded and recovered from them for the delayed period under section 75 of the Finance Act, 1994;

(iv) Interest amounting to Rs. 1,48,94,552/- paid by them during the course of investigation should not be appropriated against the interest liability for the delayed payment of service tax as mentioned at (iii) above.

(v) Penalty under the provisions of Section 76 of the Finance Act, 1994, as amended, should not be imposed on them for failure to pay Service Tax, as mentioned hereinabove;

(vi) Penalty under the provisions of Section 77 of the Finance Act, 1994, as amended, should not be imposed on them for contravention of provisions of the Finance Act, 1994, as explained hereinabove;

(vii) Penalty under Section 78 of the Finance Act, 1994, as amended, should not be imposed on them for suppressing the full value of taxable services and material facts from the department resulting into non-payment/late payment of Service Tax as explained herein above.

PERSONAL HEARING & DEFENSE REPLY:

14.1 Adani filed their written defense reply vide letter dated November 11, 2011.

14.2 In their defense reply, Adani denied the charges and allegations leveled in the Show Cause Notice and submit that the Show Cause Notice in its entirety is mis-conceived and unsustainable. It is submitted that we are not liable to pay service tax since Foreign Currency Convertible Bonds (hereinafter referred to as “FCCBs) funds, raised with the assistance of Jeffries International Ltd. were used in relation to business situated outside India. It is submitted that merely because money raised is in relation to benefit of business of service recipient located in India, it does not mean that we are liable to pay service tax under provisions of Rule 3(3) of Taxation of Services (Provided Outside India and Received in India) Rules, 2006. It is further submitted that since there is no liability of service tax, penalties under Section 76, 77 and 78 cannot be imposed. Without prejudice to the aforesaid, it is also submitted that in the present case, in terms of Section 73(3), the Department ought not to have issued Show Cause Notice since service tax and interest have been paid before issuance of show cause notice.

14.3 In their defense reply Adani submitted that it is necessary to set out the relevant facts which are as follows:

a. Jeffries International Ltd. was the sole Manager for FCCBs issue of USD 250 Million.

b. Jeffries International Ltd. made payment of US$ 244 Million on 29.01.2007 into our current account of M/s. ICICI Bank, Hong Kong after deducting the commission of US$ 5 Million and US$ 1 Million towards expenses.

c. They made the payment of US$ 5 Lac for the fees in foreign currencies on which we paid service tax.

d. They made the payment of service tax on reimbursement of expenses.e. They availed CENVAT Credit of the amount of service tax paid.

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f. Major chunk of funds were invested in our overseas operations through Adani Global Pte Ltd. which was principal beneficiary and therefore, they paid balance amount of service charges to Jeffries International Ltd from its account.

g. They made payment of service tax of Rs.2,48,62,016/- along with interest of Rs.1,48,94,552/- during the course of investigation on being pointed out by the Department.

14.4 In their defense reply Adani submitted that it is a matter of record that the services rendered in the present case are in relation to FCCBs. As per the guidelines issued by Reserve Bank of India (RBI) which are statutory in nature, amount received from the Bond holders (Foreign Investors) who subscribed to such FCCBs must be utilized for overseas only. Accordingly, in Offer Circular Letter, it is expressly clarified that the amount received from Bond holders would be utilized in overseas. We re-produce herein below the relevant portion of Offer Letter:

“The Company estimates that the net proceeds of the Offering (after the deduction of fees, commissions and expenses) are expected to be approximately USD 240,000,000 (including the proceeds from the exercise of the over-allotment option). The net proceeds of Offering will be used by the Issuer for a) making overseas direct investments in its Singapore subsidiary, Adani Shipping Pte Limited, for such subsidiary to meet capital expenditure requirements in relation to its shipping business, b) making overseas direct investments in its Singapore subsidiary. Adani Global Pte Ltd, for such subsidiary to meet part of the costs of the Company’s Indonesian Coal mining business and c) such other purposes as may be permitted from time to time in compliance with the applicable guidelines issued by the RBI and the Government of India.”

14.5 In their defense reply Adani therefore submitted that since FCCBs were issued for overseas investors, they are not liable for payment of service tax, as held by the Hon’ble Tribunal in ENSO Secutrack Ltd Vs. CCE [2011 (23) STR 465]. The facts in the said case of ENSO Secutrack (supra) are similar to our case and in that case also assessee had issued FCCBs. Applying the ratio of said decision in case of ENSO Secutrack, the demand in respect of service rendered in relation to FCCBs is not sustainable. In such circumstances, the provisions of Rule 3(3) of Taxation of Service (Provided outside India and Received in India) Rules, 2006 are not applicable because the amount is collected for overseas investments and hence no services are received in India.

14.6 In their defense reply Adani submitted that the gross consideration for the services paid by them is only USD 0.92 Million (USD 0.5 Million - professional fees and USD 0.42 Million – other expenses (includes legal fees of USD 4,09,458.66) on which amount the service tax under reverse charge mechanism was paid by them on 14 th May, 2007 and 31st March, 2007. Adani admitted that it is true that initially, the service provider Jeffries International Ltd retained USD 6 Million. Subsequently, on 15 th

February, 2007, 23rd April, 2007 and 1st June, 2007, amount of USD 5.08 Million was remitted back to our current account of M/s. ICICI Bank, Hong Kong, as such the taxable value for taxable service under Section 67 is USD 0.92 Million only. Since on the said amount we have paid service tax in accordance with law, the question of short levy under Section 73 does not arise at all.

14.7 Adani contended that it is a matter of record that USD 4.5 Million was paid by Adani Global Pte Ltd to Jeffries International Ltd and this fortifies their stand that the recipient of the service was M/s.Adani Global Pte Ltd, who had utilized the amount received under FCCBs. As both the service provider – Jeffries International Ltd and service recipient, i.e., Adani Global Pte Ltd, are outside India, the question of payment of service tax on USD 4.5 Million does not arise at all. Hence the demand for differential tax on the sum of USD 4.5 Million is without jurisdiction since neither the service provider nor the service recipient are in India.

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14.8 Adani contended that the allegation that Adani Global Pte Ltd is not party to the contract with M/s.Jeffries International Ltd is untrue. Adani contended that the offer letter was issued in their name, but having regard to the RBI guidelines and actual receipt in the hands of Adani Global Pte Ltd meant that contract of service was between M/s.Jeffries International Ltd and Adani Global Pte Ltd. This change in the contract was based on the understanding between the parties and supported by the conduct of the parties and necessitated by the Law of India as well as the object and purpose for raising the amount as are produced in the offer letter. The amount was also directly remitted by Jeffries International Ltd into the overseas account. All these factors prove beyond doubt that the service were rendered by Jeffries International Ltd to Adani Global Pte Ltd. As such we are not liable for payment of amount demanded in the show cause notice. Nonetheless and without prejudice to our rights, we have paid service tax on USD 4.5 Million amounting to Rs.3,90,30,506/- (including Interest of Rs.1,46,56,890/-) on 27 th

July, 2011.

14.9 In their defense reply Adani also contended the SCN on grounds of limitation. It was contended by Adani that the Show Cause Notice has been issued on 12.09.2011 for the disputed period January, 2007. The Show Cause Notice ought to have been issued within normal period of one year as provided under Section 73 of the said Act. It was submitted that there was no ulterior motive to camouflage the amount of actual fees paid to Jeffries International Ltd. Since the funds were mainly used in relation to business situated outside India through Adani Global Pte Ltd., there was no liability to pay service tax. It was submitted that the extended period of limitation can be invoked only where an evasion of tax has been occasioned by the suppression, omission or failure to disclose wholly or truly all material facts required by the assessee or when the assessee had an intention 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. It was submitted that the proviso to Section 73 of the Finance Act, 1994 is in pari materia to Section 11A of the Central Excise Act, 1944. It was contended that there was no deliberate intention on their part to either not to disclose correct information or to evade the payment of any tax. There is no positive act on their 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 they were of the bona fide belief that there was no liability of service tax as the funds were mainly used for business situated outside India and Adani Globe Pte. Ltd. was the main beneficiary of the funds and they made payment of fees and commission to Jefferies. It was contended by Adani that there arises no question of willful-misstatement by them as alleged by the Department and 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 against them and all demands are barred by limitation and therefore cannot sustain. Adani also contended that in the following decisions, it is held that larger period cannot be invoked in the case of revenue neutrality.

a. Akash Optifibre Ltd Vs C.C.Ex 2010 (261) ELT 404 (T)b. C.C.Ex Vs Indeo Abs Ltd 2010 (254) ELT 628 (T)c. Moser Baer India Ltd Vs CCEx 2010 (250) ELT 79 (T)

14.10 In their defense reply Adani also contested the demand for interest under section 75 of the Act the proposal to impose penalty under section 76, 77 and 78 of the Act as according to them the entire demand is unsustainable they are not liable to pay service tax and hence, imposition of penalties and the demand of interest cannot be sustained. Adani placed reliance on the following decision of Courts / CESTAT.

1. CCE vs. HMM Ltd. [1995 (76) ELT 497 (SC)].2. Tamil Nadu Housing Board vs. CCE reported in [1994 (74) ELT 9 (SC)].3. M/s Hindustan Lever V/s CCE, Lucknow 2009-TIOL-1795-CESTAT-DEL.

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4. AEON’S Construction Products Ltd. vs. Commissioner of C.Ex., Chennai reported in 2005 (180) E.L.T. 209 (Tri. Chennai).

5. Prompt Services vs. Commissioner of Central Excise reported in 2011 (23) STR 523.

6. C.C.Ex. Vs. Pendharkar Construction reported in 2011 (23) STR 75.7. CCE, Ludhiana v. Silver Oak, 2008 (9) STR 481 (Tri).8. Kamal Photo Studio & Colour Lab Vs. CCE, Mumbai-I, 2007 (7) STR 307 (Tri).9. The Financers V. CCE, Jaipur, 2007 (8) STR 7 (Tri).10. C.C.Ex. Lucknow Vs. Orbit Travels – 2009 (15) STR 184 (Tri).

14.11 It was also contended by Adani 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 your Honour is bound, in law, to consider the same.

14.12 It was submitted by Adani that the Department ought not to have issued Show Cause Notice since service tax and interest were paid before issuance of show cause notice. Section 73(3) provided at the relevant time that no notice is required to be issued to the assessee when the assessee pays the amount of service tax on the basis of his own ascertainment or on the basis of tax ascertained by Central Excise Officers unless there is suppression or willful misstatement to evade payment of service tax. In the present case, as stated above, as there was no intention to evade service tax, the case falls within the ambit of Section 73(3) of the said Act and therefore, there was no requirement for issuance of show cause notice. In these circumstances, the action of the Department for issuance of Show Cause Notice and seeking to impose penalties under Sections 76, 77 and 78 is erroneous, illegal and contrary to the law.

14.13 In their defense reply Adani requested that a personal hearing be granted to him before any decision is taken in this matter and also craves leave to produce documents / records / case law at the personal hearing granted to us.

15.1 During the personal hearing held on 06/11/2012 the advocate of Adani reiterated the submissions made in their reply dated 11.11.11 and requested for dropping of demand and the proposal for imposing penalty on Adani .

DISCUSSION & FINDINGS:

16.1 I have carefully gone through the subject show cause notice, the submissions made by the noticee in their defence reply and at the time of personal hearing and the evidences available on record.

16.2 The basic issue to the decided in the present case is as to whether Adani is required to pay service tax on the service charges / commission charges paid by them to the Foreign Service provider namely Jefferies International Ltd. (herein after referred to as “Jeffries”)

17. Perusal of the show cause notice and the records reveal that Adani had raised $250 million USD by issuing “6% Foreign Currency Convertible Bonds (FCCB) due 2012”. Out of the aforesaid total issue amount of $250 million USD, Adani received $244 million USD on 29/01/2007 from the sole manager i.e Jefferies . Jefferies retained 6 milliion USD towards their commission and other fees and expenses.

17.1 Adani had appointed Jeffries, a private limited company incorporated under the laws of England and Wales and having its registered office at Bracken House, 1 Friday Street, EC4M 9JA, London, United Kingdom as the sole manager for the FCCB issue of USD 250 million vide subscription agreement dated 19th January, 2007.

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17.2 As a sole manager, Jeffries was required to carry out the following functions:a. to make or cause to be made an application of behalf of Adani for the bonds

to be listed on the official list of Singapore Exchange securities Limited

b. to make or cause to be made an application for the conversion shares to be listed on the BSE and NSE and would obtain the approval to list the conversion shares.

17.3 Adani agreed to pay Jeffries a combined management and underwriting commission equal to 2% of the principal amount of the total bonds issued i.e 5 million USD. Further, in addition to this Adani was also required to pay to the manager all costs, fees, and expenses related to offering / issue of FCCB, incurred by the manager.

17.4 In view of the above, Adani received net subscription amount of USD 244 million after deduction of fee of USD 5 million and USD 1 million for other expenses. M/s Jefferies made payment of USD 244 million on 29-01-2007 into current account No. 899005000188 of M/s. ICICI Bank, Hong Kong of Adani after deducting their commission and other fees and expenses in accordance with Para 12 of the agreement. Jefferies vide their letter dated 05-08-2011 have confirmed that the net subscription money collected for Adani was USD 244 million after deduction of fees and related expenses of USD 6 million. The said USD 6 million includes USD 5,09,690 on which service tax was paid on 14.05.2007 and 31.3.2007; legal fees of USD 3,34,459, which was not liable to service tax in January, 2007 and USD 5,80,851 which was later on refunded.

18. The services of managing the issue of FCCB is covered by the definition of Banking and other Financial Services (Merchant Banking Services) as defined in Section 65 (105)( zm ) read with Section 65(12) of Finance Act, 1994. The CESTAT, New Delhi-Principal Bench, in the case involving M/s JUBILANT LIFE SCIENCES LTD Vs COMMISSIONER OF CENTRAL EXCISE, NOIDA as reported in 2012-TIOL-199-CESTAT-DEL has held that the services of managing the issue is covered by the definition of Banking and other Financial Services (Merchant Banking Services) as defined in Section 65 (105)( zm ) read with Section 65(12) of Finance Act, 1994 and Section 2(e) of SEBI Merchant Bankers Rules. Prima facie, the services received are taxable.

In view of the above, the services availed by the Adani from Jeffries International Ltd in the capacity of lead / sole manager, for raising the FCCB are in the nature of Merchant Banking Services as defined under Section 65(12) of the Finance Act, 1994 and thus covered under the category of 'Banking and Financial Services' under Section 65(105)(zm) of the Finance Act, 1994.

19. Now comes the issue of taxability of the services provided by Jeffries to Adani As already discussed above, Jeffries paid a very important role for raising 250 Million USD for Adani and for the same Adani paid a hefty commission of 45,90,200/- USD (which in INR is equal to Rs. 20,31,21,051/- as per Annexure A to the SCN).

19.1 The issue of levy of service tax on the recipient of services in respect of the services received from abroad has been settled by the Hon’ble Supreme Court in the case of Indian National Ship-owners Association as reported in 2010 (17) S.T.R. J57 (S.C.) and therefore, this issue is no longer res integra.

19.2 On the subject of applicability of service tax on taxable services provided by a non-resident or a person located outside India to a recipient in India, the CBEC vide its letter F. No. 276/8/2009-CX8A, New Delhi, dated the 26th September, 2011 has clarified that “In view of the judgments of the Hon’ble Supreme Court, the service tax liability on

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any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise with effect from 18.4.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position.”

19.3 In view of the above and in terms of Section 66A of the Finance Act, 1994 read with the Taxation of Services (Provided From Outside India and Received in India) Rules, 2006 and Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, Adani was required to pay service tax on the commission amount paid by them to Jeffries. Initially, Adani paid 5,09,690 USD to Jeffries as part payment towards the services and paid service tax on the same on 14.5.2007 and 31.3.2007 under the reverse charge mechanism as provided under section 66A of the Finance Act, 1994 and the rules framed there under. Thereafter, M/s Adani discontinued payment of Service tax on the amount paid by them to Jeffries. It is thus evident that Adani had received service from Jeffries and were very well aware of the fact that they were required to pay service tax on the service charges for the services received by them from a service provider located outside India.

20. Adani have in their defence mentioned that the services which were rendered by Jeffries was outside India and were also consumed outside India and hence they were not liable to pay service tax. In this regard they placed reliance on the case ENSO Secutrack Ltd Vs. CCE as reported in [2011 (23) STR 465].

20.1 Another argument put forth by Adani is that the service was rendered by Jeffries to Adani Global Pte Ltd. and not Adani and hence they are not liable for payment of amount demanded in the show cause notice. Adani has contended that it is a matter of record that USD 4.5 Million was paid by Adani Global Pte Ltd to Jeffries and this fortifies their stand that the recipient of the service was M/s.Adani Global Pte Ltd, who had utilized the amount received under FCCBs. They stated that the service provider – Jeffries International Ltd and service recipient, i.e., Adani Global Pte Ltd, are outside India, the question of payment of service tax on USD 4.5 Million does not arise at all and hence the demand for differential tax on the sum of USD 4.5 Million is without jurisdiction since neither the service provider nor the service recipient are in India. They also stated that however without prejudice to their rights, they have paid service tax on USD 4.5 Million amounting to Rs.3,90,30,506/- (including Interest of Rs.1,46,56,890/-) on 27th July, 2011.

20.2 In this regard, I find that the judgement cited supra by M/s Adani in the case of ENSO Secutrack Ltd Vs. CCE, passed by the Hon’ble CESTAT was with regard to generation of money outside India by issuing FCCB Bonds and consumption of the same in Mauritius which was outside India. The judgement relied upon by Adani has no relevance with the present case as it has not been brought on record that the money raised through FCCB was invested outside India by M/s Adani . Hence the ratio of the judgment cannot be made applicable to the instant case.

21. In this regard I find that it was an after thought on part of Adani to route the payment of commission through M/s.Adani Global Pte Ltd. This was perhaps done by them to evade payment service tax on the commission amount. The subscription agreement dated 19th January, 2007 which is a vital document based on which commission was paid to Jeffries clearly brings out the following facts:

a. The subscription agreement dated 19th January, 2007 is executed between Adani Enterprises Ltd having registered office at Adani House, Nr. Mithakhali Circle, Navrangpura, Ahmedabad- 380 009 and Jeffries International Ltd, a private limited company incorporated under the laws of England and Wales and having its registered office at Bracken House, 1 Friday Street, EC4M 9JA, London, United Kingdom. The agreement has been duly executed and delivered by the issuer, namely, Adani and constitutes a valid and legally binding obligation of the issuer, namely, Adani . Thus it can be seen that under the subscription

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agreement dated 19th January, 2007 the beneficiary of the service and the subscription money in respect of the FCCB is Adani and not Adani Global Pte Ltd .

b. The subscription agreement dated 19th January, 2007 is not executed between Jeffries International Ltd and Adani Global Pte Ltd, a Singapore based company. The issuer, that is, Adani is a public limited company duly incorporated and validly existing under the laws of India. Adani Global Pte Ltd is also another duly incorporated entity and validly exists as a corporation under the laws of the jurisdiction in which it is organized. Both are independent entities and are lawfully qualified to do business under the laws of the jurisdiction in which it is organized and in compliance to all laws and regulations to which it is subject.

c. The subscription agreement dated 19th January, 2007 executed by Adani (the issuer of FCCB) with Jeffries International Ltd (the manager to FCCB) reveals that vide this agreement Adani had undertaken to the manager to issue the firm bonds to the manager or as the manager may direct. One of the issuers warranties as per the agreement (schedule 4) is, that the issuer, that is Adani , has sufficient authorised shares capital to satisfy the issue of such number of shares as would be required to be issued as conversion shares against the 6% Foreign Currency Convertible Bonds (FCCB) due 2012. The payment of proceeds in respect of the subscription of bonds to the issuer, that is, Adani , shall be net of commission, fees and expenses or other sums which may be deducted from the issue price. The agreement reveals that Adani / issuer has undertaken to pay to the Manager, that is, Jeffries and authorizes the manager to deduct such sums from the subscription moneys for the bonds all commissions, concessions, fees and expenses and any other amounts due to the manager. Thus the FCCB and the shares against these FCCB when due in the year 2012 are to be issued by Adani to the manager, i.e., Jeffries International Ltd., or as the manager may direct. The subscription money for the bonds is received by Adani . Jeffries International Ltd has received their charges by way of an inbuilt mechanism under the agreement which enables Jeffries International Ltd to deduct the same from the subscription money due to Adani . Thus the services are received by Adani and also paid for by Adani .

d. Adani paid USD 5,09,690 to Jeffries on 14.5.2007 and paid service tax on the same under the reverse charge mechanism as provided under section 66A of the Finance Act, 1994 and the rules framed there under.

21.1 It is evident from the above discussion that the reasons for non payment of service tax put forth Adani are nothing else but colorable device to defeat the statutory service tax provisions and to avoid payment of service tax. They had initially paid service tax on 5,09,690 USD paid by them to Jeffries. However later on it seems that to shrug off the tax liability they routed the entire funds through M/s Adani Global Pte Ltd. I find that Adani is the beneficiary / recipient of the services rendered by Jeffries under the subscription agreement dated 19th January, 2007 and the obligations under the agreement is also on Adani and not on Adani Global Pte Ltd. Thus, Adani is liable to pay service tax on the amount paid to Jeffries International Ltd (the manager to FCCB) and thus service tax amounting to Rs.3,90,30,506/- (including Interest of Rs.1,46,56,890/-) on 27th July, 2011 paid by Adani is legally leviable and recoverable.

21.2 I further find that no reasonable cause has been shown by Adani for their failure to comply with the requirement of the law. There is nothing on record to suggest that Adani ever approached the office of the service tax authorities to ascertain the details of their liability to pay the service tax. It was also ascertained by DGCEI that the gross amount of USD 6 million deducted by Jefferies from the subscription amount towards commission, fees and expenses to Jefferies were not reflected in their ledger accounts as well as in their profit & loss accounts. It is on record that Adani avoided furnishing copy of subscription agreement entered with Jefferies pleading that the same is

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not traceable in their office. Suspecting foul play, DGCEI extended investigation to Jeffries International Ltd (the manager to FCCB) and called from Jeffries International Ltd (the manager to FCCB) and obtained the copy of subscription agreement dated 19th January, 2007 entered with Adani relating to the issue of FCCB of USD 250 million and information relating to payment of fees. Only thereafter, during the course of investigation by DGCEI, the appropriate service tax that was paid by Adani . Thus, Adani has paid the service tax only after the initiation of investigation by DGCEI and only after extension of the investigation to the foreign based service provider.

22. My above findings are further strengthened by the judgement of Hon’ble Supreme Court in the case of M/s Mc DOWELL AND COMPANY LTD Vs COMMERCIAL TAX OFFICER, ANDHRA PRADESH as reported in 2002-TIOL-40-SC-CT . In the said case the Apex Court has observed that “Tax planning may be legitimate provided it is within the framework of law. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges”.

“Colorable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid the payment of tax by resorting to dubious methods”.

23. Now comes the issue of invoking the extended period and imposing of penalty under Section 78 of the Finance Act, 1994. Before going to the merits of the case, I refer to the judgment in the case involving Aircel Digilink India Ltd. v/s Commissioner of Central Excise, Jaipur, as reported in 2006 (3) STR 386 (Tri.-Del) and the case involving Bharti Cellular Ltd. v/s Commissioner of Central Excise, Delhi, as reported in 2006 (3) S.T.R. 423 (Tri.-Del). In both the cases, the Hon. Tribunal upheld invocation of extended period after taking note of the fact that appellants had not disclosed certain details and mode of computation in their ST-3 details and that there was nothing on record to suggest that appellants ever approached the office of the service tax authorities to ascertain the details of their liability to pay the service tax. Similarly, in case of Insurance & Provident Fund Department v/s. Commissioner of Central Excise, Jaipur-I, 2006 (2) S.T.R. 369 (Tri.-Del.), Hon. Tribunal held that non-disclosure of full amount of premium collected would attract invocation of extended period. The ratio of the above judgments can be applied to the present case also as Adani had kept the Department in dark about his activities and had not only suppressed the material facts from the department but has also failed to comply with law and procedures, including payment of service tax.

23.1 In view of the above, I hold that in the facts and circumstances of the present case, proviso to section 73 (1) of Finance Act, 1994, is rightly invoked for raising the demand for service tax against Adani . As already discussed in above paras, Adani had purposefully not shown the actual amount paid by them to Jeffries as commission. Infact by routing the payment through their other company namely Adani Global Pte Ltd. they tried to show that the services received from Jeffries were consumed out side India. They have by resorting to this practice tried to evade payment of service tax. I find that Adani have received service in relation to FCCB from Jeffries and hence are liable to pay service tax on the commission paid by them to Jeffries under the capacity of service recipient. Adani are therefore liable to all the penalties as proposed in the SCN.

24. As regards the issue of revenue neutrality, I find that Hon’ble CESTAT, West Zonal Bench, Mumbai, in a case involving M/s Forbes Marshall P Ltd Vs Commissioner Of Central Excise, Pune-I as reported in 2013-TIOL-45-CESTAT-MUM has held that

“since it is a revenue neutral situation, tax need not be paid is completely unacceptable - such a proposition cannot stand to any common sense or logic and is rejected outright - tax liability if not discharged in time interest liability is automatic and consequential - penalty issue can be decided at time of final hearing.”

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The ratio of the above ruling is squarely applicable in the instant case. Adani’s attempt in evading payment of service tax and the various penalties under the garb of bona fide belief has no legal panacea for the offence of willful mis-statement or suppression of material facts, which can be cured only by way of demanding duty in accordance with procedure framed in proviso to section 73 (1) of the Act.

25. As regards imposition of simultaneous penalty, I place my reliance on the judgment of Hon’ble High Court of Kerala in the case of Assistant Commissioner of Central Excise v. Krishna Poduval as reported at [2006] 3 STT 96 (KER) which is aptly applicable to the present case. I find that the imposition of penalty under sections 76 and 78 of the Act is for non payment of service tax and suppression of value of taxable service respectively which are two distinct and separate offences attracting separate penalties. I find that the said assessee has committed both the offences and therefore penalties under section 76 and 78 of the Finance Act, 1994 are imposable on the said assessee for the period upto 9.5.2008.

26. As regard imposition of penalty under Section 77 of the Finance Act, 1994, I find that M/s Adani has filed the ST-3 returns in the prescribed format but have declared less taxable value. I have already imposed penalty under Section 78 of the Finance Act, 1994 for suppression of taxable value which is the very basis of the show cause notice. Therefore, no separate penalty is imposable on the said assessee under Section of 77 of the said Act.

27. As regards their contention for invoking Section 80 of the Finance Act, 1994 for waiver of penalty, I find that Adani have not produced any reasonable cause for the failure to pay service tax. They have purposefully not shown the actual amount paid by them to Jeffries as commission. Infact by routing the payment through their other company namely Adani Global Pte Ltd. they tried to show that the services received from Jeffries were consumed outside India. They have by resorting to this practice tried to evade payment of service tax. Therefore, I consider it appropriate to hold M/s Adani liable to penalty under Section 76 and 78 of the Finance Act, 1994.

28 Having regard to the facts and circumstances of the case as discussed hereinbefore, I pass the order as follows:

ORDER

(i) Service Tax amounting to Rs. 2,48,62,016/- (which includes service tax of Rs. 2,43,74,526/- and education cess of Rs. 4,87,491/-) (Rupees two crore forty eight lakh sixty two thousand and sixteen only) under the category of Banking and other Financial Services (Merchant Banking Services) as defined in Section 65 (105)( zm ) read with Section 65(12) of Finance Act, 1994, is confirmed and ordered to be recovered from Adani under the proviso to Section 73 (1) of the Finance Act, 1994, invoking the larger period of five years, as discussed herein above.

(ii) The service tax amounting to Rs. 2,48,62,016/- (which includes service tax of Rs. 2,43,74,526/- and education cess of Rs. 4,87,491/-) (Rupees two crore forty eight lakh sixty two thousand and sixteen only) paid by Adani during the course of investigation is appropriated against the service tax liability as mentioned at (i) above.

(iii) Interest at the appropriate rate on the amount of their service tax liability amounting to Rs. 2,48,62,016/- as mentioned herein above is ordered to be recovered from Adani under Section 75 of the Finance Act, 1994 for the delay in making the payment.

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(iv) Interest amounting to Rs. 1,48,94,552/- paid by Adani during the course of investigation is appropriated against the interest liability for the delayed payment of service tax as mentioned at (iii) above.

(v) I hereby impose Penalty under Section 76 of the Finance Act, 1994 of two hundred rupees, for every day during which such failure continued or at the rate of Two per cent of such tax, per month, whichever is higher, starting with the first day after the due date till the date of actual payment of the outstanding amount of service tax for the failure to make the payment of Service Tax payable by them within prescribed time limit; the total amount of the penalty payable in terms of this section shall not exceed the service tax payable for the period up to 09/05/2008.

(vi) I do not impose Penalty under Section 77 of the Finance Act, 1994

(vii) I hereby impose Penalty under Section 78 of the Finance Act, 1994 amounting to Rs. 2,48,62,016/- (Rupees two crores forty-eight lakhs sixty-two thousand and sixteen only). In the event of Adani opts to pay the amount of service tax along with all other dues as confirmed and ordered to be recovered, within thirty days from the date of communication of this order, the amount of penalty liable to be paid by them under Section 78 of the Finance Act, 1994 shall be 25% of the said amount. However, the benefit of reduced penalty shall be available only if the amount of penalty is also paid within the period of thirty days from the communication of this order; otherwise full penalty shall be paid as imposed in the above order.

(Tejasvini P. Kumar)Commissioner

Service Tax, Ahmedabad.By Regd. Post ADF. No: STC / 4 – 75 / O & A / 11 – 12. Date: 05/ 03 / 2013.

To,M/s Adani Enterprises Ltd.,Adani House, Nr. Mithakhali Circle,Navrangpura, Ahmedabad: 380 009.

Copy to:1. The Chief Commissioner, Central Excise & Service Tax, Ahmedabad Zone,

Ahmedabad.2. The Additional Director General, Directorate General of Central Excise

Intelligence, Ahmedabad Zonal unit, 1st Floor, Preema Chambers, Near Mithakhali Six Roads, Navrangpura, Ahmedabad – 380006, Gujarat. Refer your F. No. DGCEI/AZU/36-69/2010-11 Dated: 12-09-2011.

3. Deputy Commissioner of Service Tax, Division- II, Ahmedabad.4. Superintendent, Service Tax, Range - VIII, Division- II, Ahmedabad.5. Guard File.

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Documents

To,sevakarahmedabad.nic.in/doc/cmmr/2013/02-2013.doc · Web viewHowever, Adani have not paid service tax on the value of commercial charges paid to the foreign service provider