The Customs, Excise, Service Tax Appellate Tribunal (CESTAT) set aside the order of demand of service tax, penalty, and interest passed by the Commissioner of Service Tax against M/s Adani Power Limited.
The Appellant, M/s Adani Power Limited is in the business of generation and transmission of power. It set up a Thermal Plant at Tunda and Siracha. In regard to the service tax paid by the Appellant under reverse charge mechanism as provided for under Section 66A of the Finance Act, 1994, the Appellant filed refund claims under the notifications issued from time to time since it was situated within SEZ.
An inquiry was, however, initiated against the Appellant in regard to External Commercial Borrowings transactions for setting up the power plant, particularly in regard to ECB of US$ 500 million from Standard Chartered Bank, London, and ECB of US$ 99 million from ICICI Bank, Hong Kong.
Consequently, a show-cause notice was issued to the Appellant, which stated that ECB being “lending” is covered under the definition of “banking and other financial services‟ and the charges recovered by the lender, apart from the interest, shall be the gross amount charged by the service provider of such service, which would be considered as the taxable amount under Section 67 of the Act.
The Commissioner observed that even if the ECB of US$ 500 million was canceled, service tax should have been paid first and thereafter refund could have been claimed. The Commissioner, therefore, confirmed the demand for service tax with penalty and interest.
The tribunal headed by the President, Justice Dilip Gupta set aside the order of demand of service tax, penalty, and interest passed by the Commissioner of Service Tax against M/s Adani Power Limited.
“In any case, an erroneous deposit of service tax and then claiming refund would not mean that the Appellant should be directed to commit the same mistake in regard to the ECB facility of US$ 500 million granted by the London Bank. This apart, the Department has not even pointed which part of service was actually utilized by the Appellant outside SEZ. Thus, a deposit of service tax and then making a claim for refund cannot in any manner lead to a conclusion that the services were not wholly consumed within SEZ,” the tribunal observed.
Therefore the tribunal upheld the contention of the appellant in asserting that the show cause notice could not have been served upon the Appellant under sub-section (1) of section 73 of the Act since the Appellant had deposited the entire tax with interest before the service of the show-cause notice.
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