Custom, Excise & Service Tax Tribunal
M/S Abn Amro Bank vs Cce, Noida on 26 July, 2011
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL, West Block No.2, R. K. Puram, New Delhi. Court No. II Service Tax Appeal No. 578/09 (Arising out of O/O No.03/Commissioner/Noida/08 dated 21.1.2009 passed by Commissioner of Central Excise, Noida) M/s ABN AMRO Bank Appellant Vs CCE, Noida Respondent
Appearance:
Rep. by Shri R. Murlidharan, Authorised Representative for the appellant Rep. by Shri Amrish Jain, SDR for the respondent Coram: Honble Shri D. N. Panda, Judicial Member Honble Shri Sahab Singh, Technical Member Reserved on : 25.05.2011 ORDER NO : Per D. N. Panda :
Factual matrix of the case The appellant came in appeal against the Order-in-Original dated 21.1.2009 giving rising to following consequences:
(i) Service Tax of Rs.2,63,42,711.00 and Ed. Cess of Rs.4,13,431.00 aggregating Rs.2,67,56,142.00 was demanded in terms of provisions of Section 73 of the Finance Act, 1994 (hereinafter referred to as the Act) under extended period, along with interest due thereon under Section 75, ibid, from M/s ABN AMRO Bank, Noida ;
(ii) (a) Penalty @ Rs.150.00 per day was imposed for failure in paying Service Tax from the due date of Service Tax to the date of payment of Service Tax for the period prior to 18.04.06 under Section 76, ibid and
(b) Penalty @ 2% per month starting from 18.4.06 to the date when the entire amount of Service Tax was paid was imposed under Section 76 ibid and penalty under sub-clause (a) and (b) above in totality shall not exceed the amount of service tax, i.e., Rs.2,67,56,142/-;
(iii) Penalty of Rs.1000.00 only was imposed under Section 77 of Finance Act, 1994 on M/s ABN AMRO Bank, Noida; and
(iv) Penalty of Rs.4,00,00,000.00 (Rs. four crores only) was imposed under Section 78 of Finance Act, 1994.
2. Basing on the result of an investigation, Show Cause Notice (SCN) dated 3.10.2007 (Ref : available at page 45 of the appeal folder) was issued to the appellant making allegation of evasion of service tax to the extent adjudicated as aforesaid in respect of credit card services provided by the Appellant. Ld. adjudicating authority examining the charges in the SCN, reply of the appellant thereto filed on 30th December, 2008 (available at page 88 of the appeal folder) and taking into consideration the law in force at the relevant point of time, i.e. for the period 1.6.2002 to 30th April, 2006, held that the nature of service provided by the appellants was credit card services within the meaning of the term banking and other financial services and invoked the taxable entry under Section 65 (72)(zm) of the Act for levy of service tax on the taxable service provided by the appellant. According to the scope of the term banking and other financial services included interchange fees received from acquiring bank and credit card charges received from card holders by the Appellant. The nature of service provided by the appellant bank fetched it the receipt from acquiring bank and made it liable to service tax for which service tax to the extent aforesaid was imposed in adjudication followed by penal consequences of law and levy of interest. Ld. Adjudicating Authority while adjudicating the matter considered meaning of the term banking and other financial services with the help of the definition given by Section 65 (10) and later named as section 65(12) of the Act.
3. Ld. Adjudicating authority in para 2 of the adjudication order indicated extent of enquiry and examination done at various stages to ascertain loss of Revenue and in para 4 of the order indicated how he was guided by the procedure followed in Banking Industry in providing credit card services. The said para reads as under :-
4. The procedure followed in banking industries in this context is summarized as under :
(i) banks are engaged in providing credit card services to its customer by way of issuing credit card as the Issuing Bank. They enter into an agreement with merchant establishment (ME)/service establishment (SE) and they undertake sale of goods or services to the holders of credit card issued by bank. ME/SE generate bill of concerned card holder with the help of machine installed by the bank at the premises of ME/SE. Bill thus generated is given to the bank for payment whereupon the bank reimburses the amount less a certain percentage of discount which is retained by the bank. Sometimes the issuing bank does not provide the machines to the ME/SE which may be provided by another bank known as Acquiring bank under certain terms and condition with the issuing bank and discount retained are shared.
(ii) (a) In common parlance, banks which are in acquiring card activities are known as Acquiring banks and they provide the different shop/merchant establishment EDC machine with inbuilt software. The acquiring bank acts also as issuing bank ;
(b) Customer issuing bank : A financial institution that provides a customer with a credit card or other payment instrument. Examples include Citibank, ICICI Bank etc.. During a purchase, the Customer Issuing Bank verifies that the payment information submitted to the merchant is valid and that the customer has the funds or credit limit to make the proposal purchase ;
(c) In case of Credit Card, bank maintains account of its customers with a specific credit limit ;
(d) The Card is an account access device issued by Bank bearing the name or trade mark, service mark or logo of that particular bank ;
(e) The Card Number is an individual/person whose name is embossed on front of the card ;
(f) The charges are the purchases/services made/availed by the card member with the card ;
(g) Establishment is an individual or organization who signs the application and would mean and includes all officers/locations from where the same are likely to submit charges ;
(h) The Discount is the fees for accepting charges ; (i) ME/SE are appointed as per certain terms and conditions, which are stipulated and dictated by the Acquiring bank ; (j) The Issuing Bank recovers the charges from the card member for purchases/services made/availed by the card member with the card by way of issuing invoice on monthly basis ; (k) The Issuing Bank pays the amount of all the charges submitted by the acquiring bank after deducting their share of discount rate/fees deducted from the ME/SEs ; (l) The Discount rate/fees deducted from ME/SE are received by Issuing bank is known as Interchange fees. Interchange fees are charge by the merchants acquirer to a card accepting merchant as component of the so called merchant discount rate (also referred to as Merchant service fee). The merchant pays a merchant discount fee that is typically 2 to 5%. The majority of this fee, called the interchange fee, goes to the issuing bank, but parts of it go to the processing network, the card association (American Express, Visa, Master Card etc.) and the merchants acquirer (Acquiring bank). (iii) Whenever a customer buys any item from these establishments using credit card, the customer gets the item without any immediate payment. Whenever a credit card holder wants to purchase goods/services from a merchant establishment, he produces the card to a merchant, instead of paying in cash. The card is then swiped in the swiping machine installed at the premises of such establishment. The moment the establishment swipes the credit card of the customer, online information is transmitted to the Acquiring bank/issuing bank, which then sends response to the establishment after verifying the authenticity of the card holder. Transaction takes place and charge slip is generated by swiping machine. Customer signs charge slip and merchant retains a copy of the same. Thereafter, ME submits copy of charge slip to acquiring bank. After completion of transaction, acquiring bank makes payment to the merchant for all the charge slips submitted by the merchant after deducting the Merchant fees/service charge/discount/commission at a pre-agreed rate varying from 2 to 5% of the transaction value, in consideration to the business generated on credit card at the establishment location. Acquiring bank thereafter collects the payment from the cardholder if they are their card holder otherwise collects the same from the card issuing bank. Issuing bank makes payment to the acquiring bank after retaining part of the amount withheld by acquiring bank as merchant fees/service charges/discount/commission which is known as Interchange fees.
(iv) The portion of the ME/SE discount charged by the acquiring bank from the ME/SE is passed on to the issuing bank through mater card as part of master card daily settlement process. Thus the acquiring bank as well as the issuing bank is distributing the ME/SE discount through master card in a pre-agreed ratio as prescribed under Master Card guidelines. 4.1 In the course of investigation, statement of Shri S. Venkatesan, Vice President and head of card operation of the Appellant bank was recorded on different dates, i.e., on 29.11.2005, 7.3.07 and on 16.4.07 to ascertain method of working of the appellant bank in respect of credit card services provided by it to its credit card holders and that was summarized in paragraphs 7, 8, 9 of the adjudication order. In his statement dated 29.11.2005, he stated that the bank issues credit/ Master Card to individuals charging fees and it was not on acting as an acquiring bank at the relevant point of time. It was entitled to get 1.10% of the discount earned by Acquiring Bank from settlement of Account with Merchant Establishment. Similarly, 1.16% was its entitlement on international transactions. From June, 2002 till 27.11.2005, the appellant received an amount of Rs.21.56 crores as its share and they had not paid service tax on such receipt. (Ref: page 5 of the Adjudication order). In the statement dated 7.3.07, the manner how credit card service is provided under Master Card guidelines and consideration received from such operation was explained. [Ref.: Para 8 (v) and (viii) (Ref: page 5-6 of Adjudication order].
4.2. In a further statement dated 16.4.2007, the Vice President of appellant stated that it was not having any income directly from Merchant Establishment but the acquiring bank paid them interchange fees as per MasterCard guidelines ; acquiring bank enrolls merchant establishment (sellers of goods or providers of service) for facilitating credit card transaction at the merchant outlets and that bank pays the issuing bank interchange fees as part of the daily settlement process of MasterCard. It was further explained that acquiring bank was required to pay interchange fee to the issuing bank (Appellant) as per master card guidelines. Statement recorded as above was reiterated by written submission of the bank (Appellant) on 18.05.07.
5.1. To adjudicate the matter, the adjudicating authority framed following three issues (Ref : Para 24 of the adjudication order) as under :
(i) Whether, service Tax amounting to Rs.2,63,42,711.00 and Ed. Cess of Rs.4,13,431.00 is demandable from them under Section 68 and Section 73 (1) of Finance Act, 1994 after invoking extended period of limitation for the taxable services rendered by them in relation to credit card services under the category of Banking and Other Financial services for the period from 1.6.02 to 30.4.06 ;
(ii) Whether Interest on above amount of service tax is demandable from them under Section 75 of Finance Act, 1994 ;
(iii) Whether penalties under the provisions of Section 76, Section 77 and Section 78 of Finance Act, 1994 are imposable upon them.
5.2. All the three issues aforesaid were decided against the appellant. First issue was dealt in adjudication order elaborately in terms of paras 25.1 to paras 25.13 and levy of interest as well as penalty relating to issue Nos.2 & 3 were dealt in paras 25.14 to 27.2 of the said order.
ARGUMENTS ON BEHALF OF THE APPELLANT 6.1. Learned Authorised Representative appearing on behalf of the appellant before Tribunal argued that the adjudication related to the period 1.6.2002 to 30th April, 2006 and that has taxed interchange fees received by the appellant under the Act when meaning of credit card service was defined by section 65(33a) of the Act, w.e.f. 01.05.2006 by Finance Act, 2006. He explained the manner how such fees arise stating that credit card is issued by a banker to its customer to enable him to make credit purchase of goods or avail service on credit from a Merchant Establishment. The Merchant Establishment who sells the goods or provides service on credit to the credit card holder either seeks payment in relation to that transaction from the card issuing bank or through an intermediary called Acquiring Bank. If payment is made by card issuing bank directly, there arises no intermediary. If payment is claimed through an intermediary, i.e., acquiring bank under MasterCard arrangement policy that intermediary honours the claim of Merchant Establishment.
6.2 According to MasterCard policy arrangement, claim made by Merchant Establishment in respect of credit card purchase or availment of credit card facility is settled discounting the transaction value made by card holder with Merchant Establishment. As a result of which Merchant Establishment is paid a lesser sum than the credit transaction value made with it by card holder. The difference (which is discount) is consideration for card issuing bank and acquiring bank and shared by them according to terms of MasterCard policy. The money paid by acquiring bank to the merchant establishment in respect of credit card service is realised from the card issuing bank through the terms of Master Card arrangement.
6.3. Ld. Authorized Representative further submitted that out of discounting, 1.10% for domestic transaction value and 1.16% in respect of international transaction value paid to the appellant and that was subject matter of taxation by the impugned order holding the appellant as credit card service provider and provided taxable service. The consideration received by the appellant was as an acquiring bank. He explained that according to Section 65 (72)(zm) of the Act, any service provided to a customer by a banking company or a financial institution including a non-banking financial company in relation to banking and other financial services was taxed from 16.7.2001. The term banking and other financial services used in that Section at the relevant point of time was defined by section 65(10) and thereafter renumbered as section 65(12) included credit card services within its fold. But for the first time, enacting Finance Act, 2006, the term, credit card, debit card, charge card or other payment card services were defined by Section 65 (33a) of the Act w.e.f. 1.5.2006. So also credit card service which was appearing in Section 65(12) of the Act was omitted from that section by Section 68 of the Finance Act, 2006 and Section 65 (105)(zzzw) of the Act was enacted to tax services relating to such card facility. Accordingly, what does credit card mean was defined in Section 65 (33A) of the Act enacting Finance Act, 2006 and what is to be taxed in relation to credit card service w.e.f.1.5.2006 was done by Section 65 (105)(zzzw) of the Act. Therefore, the service provided by the appellant during impugned period was not subject matter of service tax before 1.5.2006 because Notification No.15/06-ST dated 25.4.2006 made Section 65 (105)(zzzw) read with Section 65 (33a) to came into force w.e.f.1.5.2006.
6.4. Learned Authorized Representative further submitted that the Central Board of Excise & Customs on introduction of credit card service to taxation by the Finance Act, 2001 w.e.f. 16.7.2001 incorporating Section 75(72)(zm) read with Section 65 (10) and thereafter renumbered as Section 65 (12) of the Act explained the levy in terms of Para 2.2 of the communication issued under F.No.B.11/1/2001-TRU dated 9th July, 2001. At that time there was no definition of the term credit card. It was explained by Board that any amount paid by a customer to credit card service provider prior to 16.07.2001 was not taxable. The appellant had not provided credit card service to the customer. But as an intermediary acquiring bank, the appellant was getting its share on the difference settled in respect of credit card transaction which was not liable to tax during the impugned period.
6.5. According to Ld. AR, the service provided by an acquiring bank came to the ambit of sub-section (33a) of Section 65 of the Act by the Finance Act, 2006 w.e.f. 1.5.2006 and credit card service was brought to tax by introducing Clause (zzzw) to Section 65 (105) of the Act w.e.f. 1.5.2006. Thus, the appellant was immune from taxation under the Finance Act, 2001 during the impugned period since Section 65 (72) (zm) read with Section 65 (10) or 65(12) of the Act as the case may be did not intend to tax the appellant as acquiring bank.
6.6. The ld. Authorised Representative also submitted that the appellant having explained its entire method of working and the communication issued by Board under F.No.534/04/2006/TRU dated 28th February, 2006 explaining changes made in law to come into force from 1.5.2006, adjudication was unwarranted.
6.7. It was also submitted on behalf of the appellant that the appellant did not serve any customer while the acquiring bank met payment of the claim made by Merchant Establishment, CBEC circulars was binding on the department for no levy of tax on the Appellant following the decision in CCE vs. Reliance Industries 2010(259)ELT356 as well as UoI vs. Arviva Industries (I) Ltd. 2007(209)ELT5(SC) and India Cement Ltd. & Anr. 2011 VIL1 2SC. So also it was submitted that classification of service provided by the department in contravention of the instructions of Board is bad in law and adjudication order is liable to be set aside.
6.8. It was further submitted on behalf of the appellant that it gains support from the decision taken by the Bombay Commissionerate in terms of the Order-in-Original No.01/STC/SJS/07-08 dated 22.5.07 and by Chennai Commissionerate in terms of Order in Original No.29/2006 dated 21.11.2006 where similar service provided was not taxed.
6.9. It was further submitted on behalf of the appellant that the appellants did not fail in its duty to reply to the questions of the Department. It replied to the letter of the Superintendent received on 16.1.2006. Reply was also given on 17.2.2006 (available at page 125 to 128 of appeal folder) denying liability. So also the appellants replied to the show cause notice on 30th December, 2008 (available at page 88 to 101 of appeal folder). When the appellants correctly brought the facts and law to the notice of the authority explaining its method of working, did not suppress any material fact to the department as pleaded in grounds of appeal at page 26 to 30 of the appeal memo. Therefore, extended period of limitation was not invokable and adjudication was time barred following the decision in CCE vs. Well Impression (India) Pvt. Ltd. 2011(264)ELT193(Cal.) and Universal Packaging vs. CCE 2011(264)ELT147(Tribunal). So also for no suppression of facts nor any motive to cause loss of revenue, the appellant was not liable to penalty at all and the impugned order is liable to be set aside since appellant was registered with Service Tax Authority w.e.f. 18.07.2002 and there exists reasonable cause under section 80 of the Act for waiver of penalty.
6.10. It was alternatively argued that if at tax is leviable, tax-cum-price benefit be allowed to the appellant applying the tax rate as applicable at the relevant point of time.
ARGUMENT ON BEHALF OF REVENUE 7.1. Per contra, Revenue argued that Finance Act, 2001 in terms of Section 65(72)(zm) prescribed that service provided to a customer by a banking company or a financial institution including a non-banking financial company in relation to banking and other financial services shall be taxable under the Act. The term banking and other financial services was defined by Section 65 (10) of the said Act and thereafter renumbered as Section 65 (12) at the relevant time bringing a following cluster of services including credit card services to the fold of that term :
(i) financial leasing services including equipment leasing and hire-purchase by a body corporate;
(ii) credit card services;
(iii) merchant banking services;
(iv) securities and foreign exchange (forex) broking;
(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management;
(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisition and advice on corporate restructuring and strategy;
and
(vii) provision and transfer of information and data processing.
7.2. One of the coverage of the term banking or financial services is credit card services which meant to tax such service under the taxing entry u/s 65 (72) (zm) of the Act. What is credit card service is nothing new to the banking industry as well as economy. Credit card service facilitates, cashless purchase of goods or availment of cashless services by a card holder from Merchant Establishments and payment thereof is made by card issuing bank. Card issuing bank either discharges payment to the Merchant Establishment directly or through an Acquiring Bank, and bill is issued by card issuing bank to the card holder for payment within a stipulated period according to the terms of issue of credit cards. The other modality of discharge of payment in respect of credit card transaction to Merchant Establishment is through an acquiring bank. Payment of less value against transaction made by card holder with Merchant Establishment earns discount which is shared by the acquiring bank and card issuing bank.
7.3. Ld. DR further submitted that consumers and banking industry in the economy know what is credit card service and coverage of such facility as well as manner of settlement of credit card transaction and discount earned and sharing thereof by card issuing bank and acquiring bank in terms of Master Card Policy. According to Ld. DR, the term defined by Section 65 (10) or Section 65 (12) of the Act as the case may be is an aid to interpretation of taxing entry under Section 65 (72)(zm) of the Act but not the taxing entry itself. Credit card service brought under the scope of the term banking and other financial services by Finance Act, 2001 and later brought under a different definition clause by Finance Act, 2006 did not change incidence of tax. Allocation of credit card service to a different definition clause by Finance Act, 2006 did not immune the Appellant from levy of service tax when incidence of tax occurred prior to enactment of Finance Act, 2006. Plea of the appellant that such service was not taxable from 2001 by Finance Act, 2001 in terms of taxing entry u/s 65(72)(zm) but only taxed by taxing entry u/s 65(105)(zzzw) of the Act is inconceivable. There was full fledged charging section all along.
7.4. It was further submission of Revenue that with the growing need of economy, when facility of debit card, charge card and other payment card services were introduced by banks while credit card service remained to continue to be in the statute book under charging provision of law from 2001, for convenience of tax administration, legislature having wide latitude and competency, provided a revised comprehensive definition in sub-clause (33a) of section 65 of the Act to bring all such service under the charging Section, i.e., 65 section (105)(zzzw) by Finance Act, 2006. Credit card services earlier appearing under the definition of the term banking or other financial services in Clause (10) or (12) of the Act as the case may be was only shifted to Clause (33a) of Section 65 of the Act. Thus Credit card, debit card, charge card and other payment card services were grouped together in clause (33a) of section 65 of the Act by Finance Act, 2006 all along keeping credit card service within fold the law to tax that service. By regrouping, all explicit and implicit services provided through credit card service appeared in sub-clause (33a) of section 65 of the Act omitting that term from sub-clause (12) of section 65 of the Act. Legislature is competent to do so. Mandate of legislature was not to bring credit card services to tax for the first time w.e.f. 1.5.2006 by the Finance Act, 2006 but continued to tax the same from 2001 as introduced by Finance Act, 2001.
7.5. There was no prospective legislation to tax credit card services w.e.f. 01.05.2006. Before and after enactment of Finance Act, 2006, the credit card service was all along taxable. Mere segregation of a service from one clause to another does not make a new levy while definition section is not charging section but is an aid to interpretation. While old levy was enacted under taxing entry u/s 65(72)(zm) of the Act, the Appellant misconceived that credit card service became taxable from 01.05.2006.
7.6. Further, argument of Revenue was that when the nature of credit card service was well known to consumers in the economy and banking world, Clause (33a) of section 65 of the Act regrouping such facility did not detract levy even prior to 2006 which was in existence from 2001 and was covered by taxing entry under Section 65 (72)(zm) of the Act. Legislature has freedom to classify or re-classify, define or redefine, group or regroup a subject for convenience of Tax Administration following cannon of convenience in the taxation policy. The charging provision appearing u/s 65 (72)(zm) from 2001 cannot be read as otiose and taxable service of credit card service under this charging provision cannot be pleaded to have been introduced w.e.f. 01.05.2006 by a new definition u/s 65(33a) of the Act. The period between enactment of the Finance Act, 2001 and the Finance Act, 2006 no way exempts credit card service from levy of service tax and when majority of banks were paying service tax on such service from 2001, present appellant cannot be an exception. While Finance Act, 2001 by definition of the term banking and financial services kept credit card service within its fold for levy of tax, the Finance Act, 2006 merely segregated that service to appear under clause (33a) of section 65 more conveniently. Therefore, a definition clause in law cannot be read as a charging provision.
7.7. It was also argued on behalf of Revenue that when the credit card service is provided by a bank and the account of the Merchant Establishment is settled directly by the card issuing bank or through an acquiring bank, that does not make any difference to law since ultimate service was provided to card holder customer in relation to credit card service. The customer who is a credit card holder is served by card issuing bank and in whatever manner such bank settles the dues of Merchant Establishment either directly or indirectly through acquiring bank, no way affects the levy. The acquiring bank is obliged to cater to the need of card issuing bank as a party to MasterCard policy to serve the ultimate card holder customer of the later in relation to credit card service. In both eventuality, the customer is served and card holder customer remains as a customer for both the banks in relation to the credit card service provided which is agreed by them under MasterCard policy. So also, when an acquiring bank honours claim of Merchant Establishment and settles the payment relating to credit card transaction with the Merchant Establishment, taxable event occurs for taxable service provided to a customer of the card issuing bank. Thus customer is served for which the said acquiring bank shares the discount earned with card issuing bank. Such act squarely falls under the charging provision. In all circumstances, the card holder customer remains to be customer and he is the beneficiary of taxable service.
7.8. It was further submitted on behalf of Revenue that provision of Section 65 (105)(zzzw) brought credit facilities provided through different types of cards for which all such cards came under one definition clause omitting Credit card service from section 65(12) bringing them to section 65(33a) of the Act. All activities in relation to banking and other financial services like credit card facility were taxable even prior to 01.05.2006 u/s 65(72). The term in relation to is broad enough to cover all incidental and ancillary services on the subject.
7.9. Ld. DR also submitted that according to statement recorded in the course of investigation, the appellant was a bank settling the payments claimed by the Merchant Establishment in relation to banking and other financial services covering credit card services provided to its customers. Therefore, the appellant bank when provided such service to its customer in relation to banking and other financial services, such service is not out of sweep of law since the appellant was a banking company serving its card holder customer under MasterCard policy. Therefore, the appellants contention that it was not providing credit card service to a customer client is baseless when credit card holder availed facilities of cashless purchase or service from Merchant Establishment, as a customer of the appellant bank who had obtained credit card from its bank and that only enabled the holder to make credit/cashless transaction. Role of intermediary acquiring bank does not affect levy. The appellant bank as a card issuing bank settling accounts through acquiring bank does not exonerate the appellant from liability to tax. Appellants contention that it had not provided taxable service to a customer is devoid of merit.
7.10. It was also contended by Ld. DR that acquiring bank provide EDC machine with inbuilt software to Merchant Establishment to discharge contractual obligation on behalf of card issuing bank to the card holder customers. When the consideration received by the appellants is attributable towards providing credit service to its customers and such consideration is in relation to the banking and financial services, it cannot be pleaded that the appellant had not served card holder customer.
7.11. Ld. DR relying upon para 25.6 of the adjudication order explained that the statement recorded from Vice President of the appellant company demonstrated that the appellant served its card holder customers and is liable to tax for the credit card services provided to the later. The appellant well explained in course of investigation about the nature of consideration received for the credit card service provided by it and that was lawfully taxed in adjudication.
7.12. Ld. DR inviting attention to para 25.4 to 25.16 of adjudication order explained that the appellant bank as a member of the banking industry was quite aware of its role in providing credit card service. Therefore it can neither claim innocence nor any exemption. Relying on the judgement of the Apex Court in the case of CCE, Visakhapatnam Vs. Mehta & Co. : 2011 TIOL 17-SC-CX, ld. DR submitted that failure to pay tax due to the Govt. by the appellant as a member of an established sector where highly educated officers are employed and deals financial transactions of the economy, having knowledge of law have willfully evaded and contravened law. It was well within their knowledge about their obligation under law when they were also paying income tax making deductions of tax at source on interest on fixed deposits as well as professional tax and other rates and taxes. Its officers were quite aware about the service tax law while various services became taxable from 1994 in the economy. The appellant being conscious of law cannot plead its ignorance while they established their intention to evade making breach of law. Adjudication was not time barred.
7.13. Ld. DR also relying upon the judgment of the Honble High Court of Gujarat in the case of CCE, Surat Vs. Neminath Fabrics Pvt. Ltd. : 2010 (256) ELT 369 (Guj.) submitted that suppression of facts was made because of intention of appellant bank to evade service tax liability. They did not disclose the transactions to the Department in absence of return showing receipt from credit card. The appellant as member of banking industry cannot be said to be an innocent. Appellants misinterpretation and misconception of law shall not make it tax free and immune from penalty. They have no defence merely pleading that the Finance Act, 2006 intended credit card service to be taxed w.e.f. 01.05.2006 baselessly. They are all aware that the banking industries when issued variety of cards from time to time, that called for bringing all such cards under single definition clause for convenience of tax administration. When charging section existed from 2001, there is no defence to appellant. Mere bringing of all card facilities under one definition clause by Finance Act, 2006 no way exempts credit card services from tax net prior to 01.05.2006. A type of card which was recognized much earlier by Finance Act, 2001 was not at all a stranger to Finance Act, 2006. The appellant is therefore liable to penalty and interest apart from tax levy.
REPLY OF APPELANT AGAINST REVENUES SUBMISSIONS
8. Replying to the contention of the Revenue, Ld. Authorised Representative appearing on behalf of the appellant submitted that the card holder not being a customer for the acquiring bank was not liable to adjudication. He emphasized that the circulars/ instructions issued by CBEC are binding on the department. Scope of taxable service and value of such services calls for examination while determining taxability of banking and other financial services and if at all there arises liability under law, gross value received for providing the service shall get reduced by the service tax since it is normally understood that gross value of the receipt is inclusive of taxes and the appellant shall be entitled to such benefit.
FINDINGS ANDCONCLUSION OF TRIBUNAL LAW RELATING TO CREDIT CARD SERVICE ENACTED BY FINANCT ACT, 2001 AND FINANCE ACT, 2006
9. Heard both sides and perused the record and have gone through various materials to which our attention was drawn. Credit card facilitates, purchase of goods and availment of service on credit Such service provided by banks and other financial service providers was prescribed to be taxable service during the material period for which the appellant was called upon to explain why its receipts made from such source during the impugned period shall not be taxable. For the first time, the term banking and other financial services was defined in law by Finance Act, 2001 w.e.f. 06.07.01 for the purpose of charging section enacted in section 65(72)(zm) therein. The taxable entry at the relevant time read as under :
65(72) taxable service means any service provided (zm) to a customer, by a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services.
10. The taxable entry provided by section 65(72)(zm) of the Act not only brought taxable services provided by banking company or a financial institution including a non-banking company to a customer to the tax net but also related banking and other financial services were brought to the scope of taxation using the term in relation to in that section of the Act. The term banking and other financial services used in Section 65 (72)(zm) of the Act was defined by clause (10) of section 65 to the Act which read as under :-
(10) banking and other financial services means, the following services provided by a banking company or a financial institution including a non-banking financial company, namely:
(i) financial leasing services including equipment leasing and hire-purchase by a body corporate;
(ii) credit card services;
(iii) merchant banking services;
(iv) securities and foreign exchange (forex) broking;
(v) asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management;
(vi) 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; and
(vii) provision and transfer of information and data processing;
11. The term banking and other financial services as defined by law brought a cluster of services to its fold for levy. Credit card services is one of such activity recognized by law in 2001 by Finance Act, 2001 as banking and other financial services under sub-clause (ii) of clause (10) of Section 65. As soon as law was enacted in 2001, Government explained by a communication vide No.B.11/1/2001-TRU, Govt. of India , dated 09.07.2001 that the service tax levied on different services by section 130 of Finance Act, 2001 was in respect of transactions made on or after 16.07.01. In terms of para 2.2 of the said communication, the Govt. explained its intention to tax as under :-
2.2 Credit card services 2.2.1 This is a service where the customer is provided with credit facility for purchase of goods and services in shops, restaurants, hotels, railway bookings, petrol pumps, utility bill payments etc. Cash advances are also permitted upto specified limits in most of the cases. This service is provided by nationalized banks, multi-national banks and private banks.
2.2.2 For rendering the service, the service provider collects joining fee, additional card fee, annual fee, replacement card fee, cash advance fee, charge slip/ statement retrieval fee, surcharge/service charges on railway fare, fuel charges, and utility bill payments, charges on over limit accounts and late payment fee, interest on delayed payment, interest on revolving credit etc. The fees may vary based on the type of card and from bank to bank. All these charges including interest charges are made for the services rendered. Hence they all form part of the value of the taxable service in this case.
12. According to Government, banks provide credit card facility for purchase of goods and availing services on credit. To provide such facility they receive consideration. The service so provided come within the fold of sub-clause (10) or (12) of the Act during relevant time. Law also prescribed levy on the services provided in relation to banking and other financial services.
13. When Tax Administration noticed that different types of card facilities were provided by banking sector and other financial service sector to facilitate credit transactions, they considered proper to bring all such card facilities under one definition in clause (33a) of section 65 of the Act for taxing under the taxing entry in section 65 (105)(zzzw) of the Act enacting Finance Act, 2006 for convenience of tax administration. Accordingly, credit card service which was considered as banking and other financial services in 2001 by clause (10) or (12), as the case may be and attracting levy under section 65(72)(zm) of the Act was brought to appear under clause (33a) of section 65 of the Act and continued to be taxed u/s 65(105)(zzzw) of the Act. The said taxing entry reads as under :
65(105) taxable service means service provided or to be provided:-
(zzzw) to any person, by another person, in relation to credit card, debit card, charge card or other payment card service, in any manner.
Similarly, Clause (33a) introduced to section 65 at the material time reads as under :
(33a) credit card, debit card, charge card or other payment card service includes any service provides :
(i) by a banking company, financial institution including non-banking financial company or any other person (hereinafter referred to as the issuing bank), issuing such card to a card holder;
(ii) by any person to an issuing bank in relation to such card business, including receipt and processing of application, transfer of embossing data to issuing banks personalization agency, automated teller machine personal identification number generation, renewal or replacement of card, change of address, enhancement of credit limit, payment updation and statement generation;
(iii) by any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card.
Explanation For the purposes of this sub-clause, acquiring bank means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card.
14. The inclusive definition given by clause (33a) read with section 65(105)(zzzw) of the Act brought all range of services provided by different types of cards in any manner in relation to such cards to the tax net. Legislature having wide latitude in the matter of taxation brought all cards under one group . Prior to enactment of Finance Act, 2006, credit card services provided were taxable services under Section 65 (72) of the Act till 30.4.2006 and that continued to be taxed by Finance Act, 2006. It cannot be said that charging provision of section 65 (105) (zzzw) of the Act brought credit card service into tax for the first time when charging provision of Section 65 (72) was existing in statute book prior to enactment of Finance Act, 2006. Accordingly, it may unambiguously, be stated that there was no prospective taxation of credit card service by reading of definition in clause (33a) of section 65(105) of the Act.
15. It may be noted that credit card services was taxable prior to enactment of Finance Act, 2006 for the obvious reason that legislature intended in 2006 to bring all such card services to one place by a definition separating credit card services from banking and other financial services. Both the Acts, i.e. Finance Act, 2001 and Finance Act, 2006 had the charging provision to tax credit card services for the relevant period. The relation between card issuing bank and acquiring bank was made explicit by Finance Act, 2006 as is in Clause (33a) of Section 65 of the Act. Credit card services was segregated from banking and other financial services from section 65(12) of the Act by Finance Act, 2006 bringing that under section 65(33a) of the Act in terms of section 68 of the Finance Act, 2006, Govt. of India by a communication in D.O.F.No.334/4/2006-TRU, dated 28.2.2006 in terms of para 3.19 conveyed its intention as under :-
3.19. CREDIT CARD RELATED SERVICES :- Credit card services are presently taxable under banking and other financial services. The proposal is to tax comprehensively all services provided in respect of, or in relation to, credit card, debit card, charge card or other payment card in any manner. The major services provided in relation to such services are specifically mentioned under the definition credit card, debit card, charge card or other payment card services.
Govt. of India in its communication vide No.D.O.F.No.334/4/2006-TRU, dated 28.02.06 in terms of para 3.19 did not say credit card service was taxable for the first time by Finance Act, 2006. Misinterpretation of definition clause by the appellant shall defeat the purpose of legislation when provision all along appeared in section 65(72)(zm) and later 65(105)(zzzw) of the Act. It was therefore, consciously explained by Govt. that credit card service earlier belonged to banking and other financial services prior to enactment of Finance Act, 2006 was regrouped in section 65(33a) by Finance Act, 2006.
16. The proposal by Finance Act, 2006 was to bring comprehensively all types of card under one definition clause so that all services provided in relation to such credit cards shall be conveniently dealt by the tax administration following cannon of convenience which is one of the considerations of classification rule. Therefore at no point of time, credit card service cannot be presumed to be excluded from levy before enactment of Finance Act, 2006. It may be stated that what was expressively clear soon after enactment of Finance Act, 2001 bringing section 65(72)(zm) to statute book read with section 65(10) of the Act was to tax credit card service. Therefore, express statutory grant took within its fold all incidental and ancillary service using the term in relation to credit card through the charging provision of section 65(72)(zm) and subsequently section 65(105)(zzw) of the Act to make the grant effective. Therefore, contentions of Revenue has immense force.
ADJUDICATION JUSTIFIED 17.1 With aforesaid legislative background, Revenue authorities issued Show Cause Notice to the appellant on 03.10.07 to test result of the investigation done by DGCEI on the allegation that the appellant being engaged in credit card business was not paying service tax on the consideration received for providing such taxable services. Investigation gathered various documentary evidence and recorded statement examining Vice President of Appellant Bank. The Vice President in his statement well explained the manner of providing credit service by the appellant bank. In his statement, it was categorically stated (Ref: para 8 of show cause notice to page 7) that the appellant was engaged in issuing credit cards and as a card issuing bank was entitled to get 1.10% on domestic transactions and 1.16% on international transactions and from June, 2002 to till 27.11.05, Credit card division of the appellant bank received an amount of Rs.21.56 cores as its share from MasterCard as a part of share received from merchant establishment and no service tax was paid thereon. Such fact remained uncontroverted.
17.2. It was also deposition of the Vice-President of appellant that as a member of Master Card International, the appellant bank was governed by terms and conditions of Master Card International and had the credit card holders not used their credit card, the interchange income what that is stated above, would not have accrued to appellant bank [para 9(x) of show cause notice at page 9]. It was further statement of the Vice-President of the appellant bank that the bank was not earning any income directly from the merchant but the acquiring bank paid them interchange fees as per Master Card guidelines (page 10(i) of show cause notice). He categorically stated on 07.03.2007 that ABN AMRO Bank (which is Appellant) in India has entered only into card issuance and not into acquiring business. As an issuing Bank, ABN AMRO bank issued credit cards to customers. An acquiring bank ties with specific merchants and facilitates transactions on the credit card (Ref : para 8(v) at page 6 of impugned order).
17.3. In his statement recorded on 29.11.2005, the Vice-President stated that the appellant was currently not an acquiring bank. Statement given by the Vice President was confirmed by one Shri Akash Gupta on 16.05.07 as appearing in para 11 of the show cause notice. He confirmed that the interchange income earned by the appellant bank was on account of transactions effected by use of ABN Amro Credit Card which was issued by the appellant bank (para 11 of the show cause notice). Also in the written submissions filed on 18.05.07, the appellant bank confirmed its earlier statement as aforesaid and explained the mode how the appellant made aforesaid earning. It was specifically explained that the money received from the card holder goes through the Master Card to the acquiring bank and later the acquiring bank passes share of issuing bank to the later as per Master Card policy. Above evidence when not controverted well establish that credit card service provided by appellant as card issuing bank was a taxable u/s 65(72)(zw) since gross value of the extent adjudicated was received by it from acquiring bank and entire such fact was within the conscious knowledge of Appellant.
17.4. Interchange receipt was scrutinized by Revenue and show cause notice was issued making clear in para 1 of the show cause notice that the appellant bank was engaged in providing credit card service and services in relation thereto was provided for the period from 01.06.02 to 31.04.06 and consideration was received for providing such services. Although, the receipts were routed through Master Card by the acquiring bank in the form of interchange fee, that became measure of taxation for levy of service tax in terms of provisions contained in section 65(72)(zm) read with section 65(10) of 65(12) of the Act as the case may be.
17.5. In the defence reply filed by appellant bank on 30.12.08, it was pleaded that Merchant Establishment from whom the appellant received interchange fee through the acquiring bank cannot be equated to be Customs of ABN Bank. The appellant did not rule out its activity of issuing credit card and getting the payment in relation to such cards facility provided to its customer and receipt of consideration from acquiring bank in terms of MasterCard policy. When the statement recorded as aforesaid was not discarded and modus operandi of the Appellant demonstrated that the appellant bank had issued credit cards and use of such card by the card holder, customer earned share of interchange fees for the appellant, there arose incidence of tax. Therefore, taxing gross value of taxable service so provided was rightly taxable in adjudication.
17.6. It may be stated that the object of interpretation of a statute is to discover the intention of the Parliament as expressed in the Act. The dominant purpose in construing a statute is to ascertain the intention of the legislature as expressed in the statute, considering it as a whole and in its context. The charging section using the term in relation to extended its wing to embrace all connected and related services touching object of issue of credit card facility. Express statutory grant has taken within its fold all that is required to do, so as to make that grant effective. Accordingly, the charging section brought the service of credit card facility provided and its connected and related activities to fold of taxation.
17.7. The phrase in relation to has been construed by Apex Court to be of the widest amplitude. In M/s. Doypack Systems Pvt. Ltd. v. Union of India and Others (1988) 2 SCC 299 at 302, Honble Court observed as under :
The expressions pertaining to, in relation to and arising out of, used in the deeming provision, are used in the expansive sense. The expression arising out of has been used in the sense that it comprises purchase of shares and lands from income arising out of the Kanpur Undertaking. The words pertaining to and in relation to have the same wide meaning and have been used interchangeably for among other reasons, which may include avoidance of repetition of the same phrase in the same clause or sentence, a method followed in good drafting. The word pertain is synonymous with the word relate. The term relate is also defined as meaning to bring into association or connection with. The expression in relation to (so also pertaining to), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both a direct significance as well as an indirect significance depending on the context.[Emphasis supplied].
17.8. In Renusagar Power Co. Ltd. v. General Electric Company and Another (1984) 4 SCC 679, Honble Court observed as under :
Expressions such as arising out of or in respect of or in connection with or in relation to or in consequence of or concerning or relating to the contract are of the widest amplitude and content and include even questions as to the existence validity and effect (scope) of the arbitration agreement. [Emphasis supplied] 17.9. It is well settled that in matters of taxation laws, the court permits greater latitude to pick and chose objects and rates for taxation and has a wide discretion with regard there to. Reference may be made to the decision of Mafatlal Industries Ltd. and Others v. Union of India and Others (1997) 5 SCC 536. In para 343 at page 740, Honble Supreme Court held as under:
.In the matter of taxation laws, the court permits a great latitude to the discretion of the legislature. The State is allowed to pick and choose districts, objects, persons, methods and even rates for taxation, if it does so reasonably. The courts view the laws relating to economic activities with greater latitude than other matters.[Emphasis supplied].
18. Findings made by this order as aforesaid arise on the basis of law in force at the material time and out of material facts as well as cogent evidence on record. Statement recorded in the course of investigation provides full proof of providing of taxable service by the appellant. At no stage or point of time, the chain of evidence bringing the transactions of the customer till that is settled, was de-linked. The appellant bank failed to discard the evidence of Revenue on record without leading any cogent evidence to the contrary. The appellant bank had contractual obligation to the credit card holders for the transactions to be made using the credit card who were issued such cards by the appellant. Law being concerned with taxable events and when material facts and cogent evidence on record including attendant circumstances demonstrated such event, appellants contention that it got its share from acquiring bank has no difference to law since the statement recorded from Vice President brought the appellant to the net of service tax as a card issuing bank providing taxable credit card service. Adjudication cess therefore be held to be justified and the appellant is liable to service tax for the taxable service provided.
CITATIONS MADE BY APPELLANT
19. For buttressing its claim that CBEC communications are binding on the Authorities below, the appellant relied upon the decisions made in Reliance Industries : 2010 (259) ELT 356 (Guj.), Ratan Melting and Wire Industries : 2008 (13) SCC 1 SC, Aviva Industries (I) Ltd. : 2007 (209) ELT 5 (SC), India Cements Ltd. 2011 VIL 12 SC. It was argued that Circulars and instructions issued by CBE&C were required to be adhered by Adjudicating Authority. But that Authority failed to do so. But such plea has no basis when adjudication was completed taking into consideration the law applicable at the material time, Boards Circulars as well instructions. There was proper application of law made by the learned Adjudicating Authority to come to a rational conclusion. Learned A.R. further relied on the decision in Web Impression (India) Ltd. : 2011 (264) ELT 193 (Cal.) and Universal packaging 2011 (264) ELT 147 (Tri.) to argue that adjudication was time barred. It appears that the citations relied upon by Appellant were not profitable to it for the reason that there was an established suppression of the fact made by the appellant. Although the appellant was registered with Service Tax Authorities on 18.07.2002 in respect of Banking and Other Financial Services, there was no disclosure of any exemption claimed for the impugned service provided in its returns required to be filed under law nor any explanation was furnished to the Authority before investigation to exhibit bonafides. Even two orders passed by two different Commissionerate relied upon by the appellant to plead that those authorities have exempted Credit Card services from levy during the impugned period is of no avail to the appellant because of proper law applied to the present facts and circumstances of the case to hold that the Appellant provided taxable service and was liable to service tax.
LIMITATION & PENALTY
20. Statement recorded from the Vice-President of the appellant, materials gathered and modus operandi followed by the Appellant demonstrate conscious evasion made by the Appellant. It was quite aware of the incidence of levy. As a member of Master Card Policy arrangement, appellant demonstrated its methodology of providing Credit card Service as a member of banking industry while deposition was made by its Vice-President in the course of recording of statement. Mode of settlement of credit card transactions was well known to the appellant. The appellant although was registered with Service Tax Authorities from 18.07.2002, failed to prove its innocence nor could it establish that there was no suppression of fact disclosing in its return filed. The verification of returns made was false when untrue statement of fact was made in the return. No communication was sent to the Authorities during the relevant period either to seek clarification or explain its case. All these facts and attendant circumstances clearly prove intention of the appellant to evade service tax liability on the taxable service provided. Deliberate breach of knowable law and conscious suppression of material facts causing loss to Revenue made the adjudication to be within limitation following the ratio laid down by Apex Court in the case of Mehata & Co. and Naminath Fabrics Ltd. cited (supra) by Revenue. Extended period was rightly invoked by the SCN dated 31.10.2007 when the evasion came to notice of Revenue by investigation to make good of the loss to revenue. Bonafide of the appellant did not surface. Taxes due to exchequer remained unpaid. The appellant was liable for the contravention of law. Penal consequence of law has rightly followed. The doses of penalty levied by the learned adjudicating authority appears to be proper to serve interest of Revenue. However the penalty doses shall be recomputed because we have ordered for re-computation of tax liability for the partial relief granted by this order under a separate paragraph to the appellant. There is no doubt that interest shall be recoverable on the tax recomputed.
TAX CUM PRICE PLEA
21. Appellants pleading that in case of liability arising under law; it is entitled to tax-cum-price benefit. Such plea is tenable. The gross value of taxable service received by the appellant calls for working out tax element comprised therein. Learned adjudicating authority shall grant benefit of tax-cum-price while re-computing the tax liability of the appellant for which we hereby order. For this limited purpose we remand the matter to the learned adjudicating authority. He shall also re-compute quantum of penalty leviable under different provisions of law invoked by him in adjudication and also work out interest payable on the recomputed tax demand. While re-computing tax, penalty and interest liability under law as has been directed, the authority, if considers proper, may seek relevant information, facts and figures from the appellant to avoid confusion.
22. In view of our aforesaid observations and findings, adjudication is confirmed except to the extent indicated above and the appeal is partly allowed to the above terms.
(Pronounced in the open court on 26.07.11) (D.N. PANDA) JUDICIAL MEMBER (SAHAB SINGH) TECHNICAL MEMBER RK-I ??
??
??
??
35