Custom, Excise & Service Tax Tribunal
Vkc Credit And Forex Services Pvt Ltd vs Commissioner Of Central Goods & Service ... on 17 January, 2025
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
CHENNAI
REGIONAL BENCH - COURT No. III
Service Tax Appeal No. 40323 of 2016
(Arising out of Order-in-Original No.CHN-SVTAX-0002-COM-38/2015-16
dated 23.12.2015 passed by Commissioner of Service Tax-II, Newry
Towers, No.2054-1, II Avenue, Anna Nagar, Chennai 600 040)
M/s.VKC Credit and Forex
Services (P) Ltd. .... Appellant
(now known as „M/s.Essel Finance VKC Forex Ltd.)
115/55, TTK Road,
Alwarpet,
Chennai 600 018.
VERSUS
The Commissioner of GST &
Central Excise ... Respondent
Chennai North Commissionerate,
26/1, Mahathma Gandhi Road,
Nungambakkam,
Chennai 600 034.
APPEARANCE :
Ms. Radhika Chandrasekar, Advocate for the Appellant
Shri Sanjay Kakkar, Authorized Representative for the Respondent
CORAM :
HON'BLE MR. P. DINESHA, MEMBER (JUDICIAL)
HON'BLE MR. M. AJIT KUMAR, MEMBER (TECHNICAL)
FINAL ORDER No. 40095/2025
DATE OF HEARING : 04.12.2024
DATE OF DECISION :17.01.2025
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Service Tax Appeal No. 40323 of 2016
Per: Shri P. Dinesha
1. The Appellant is an authorized dealer in foreign
exchange approved by the Reserve Bank of India and
registered under the service tax laws under the category
"Banking and other Financial Services". It is licensed to sell
and purchase foreign currency, travellers‟ cheques,
travellers‟ cards, etc., which services fall Sections
65(105)(zm) and 65(105)(zzk) of the Finance Act, 1994.
The tax periods under consideration in this Appeal are from
01.04.2008 to 31.03.2012.
2. During these periods, the Appellant entered into the
sale and purchase of foreign currency, travellers‟ cheques,
travellers‟ cards, etc. both with other authorized dealers,
money changers and foreign banks (for the sake of brevity,
hereafter, "Bulk Transactions"), and also with individual and
corporate clients (hereafter, for the sake of brevity, "Retail
Transactions").
3. With respect to Bulk Transactions, in respect of the tax
periods 2008-09, 2009-10 and 2010-11, the services
rendered by the Appellant was claimed to be exempt on the
basis of Notification No. 19/2009-ST dated 07.07.2009 as
amended by Notification No. 27/2011-ST dated 31.03.2011.
This claim of the Appellant was apparently not accepted by
the Respondent-Revenue. The Respondent felt that the
Appellant would be entitled to exemption only after the
Amendment of the Notification of 2009 by the Notification of
2011, and that contrary to the contention of the Appellant
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Service Tax Appeal No. 40323 of 2016
Notification of 2011 was only prospective. It would be
applicable from the date on which it came into force, i.e.,
01.04.2011. The Respondent thus confirmed a demand of
Rs. 7,30,28,090/- in this respect.
4. With respect to Retail Transactions, the dispute
revolves around the quantum of the consideration charged
on such services. There are two methods by which the
consideration relating to the aforesaid services are brought
to tax, which are as follows:
a. First, the Assessee or registered person may pay
tax at the normal rate prescribed under Sections 66 and
67 of the Finance Act, 1994 on the consideration
charged for the aforesaid services. The Appellant claims
that it has done so by paying service tax under Sections
66 and 67 on the sum of Rs.25/- which is claimed to be
charged by the Appellant, per transaction as a fixed
service charge, irrespective of the volume of the
currency exchanged.
b. Second, in terms of Rule 6(7B) of the Service
Tax, Rules, 1994, the assessee may pay service tax at
the rate of 0.25% of the gross amount of currency
exchanged instead of paying service tax at the rate
specified in section 66 of the Act. It is the contention of
the Revenue that tax ought to have been discharged by
the Appellant in accordance with Rule 6(7B) and not
under Sections 66 and 67.
5. To reach this conclusion, in the impugned order, the
Commissioner finds that the sum of Rs.25/- per transaction
is not representative of the whole of the consideration
charged by the Appellant. It is his finding that the exchange
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Service Tax Appeal No. 40323 of 2016
rates at which the Appellant exchanged currency are at
variance with the actual exchange rates prevailing in the
market at the relevant times and that this difference
between the actual prevailing market rate and the exchange
rate adopted by the Appellant represented the true
consideration for the transactions undertaken by the
Appellant. The Commissioner thus finds that the Appellant
earned additional amounts by unilaterally fixing the
exchange rates for the currencies dealt with. The
Commissioner therefore finds that though the service
charges of Rs.25/- fixed by the Appellant suffered service
tax, the additional amount earned by the Appellant by way
of fixing foreign exchange rates did not suffer service tax.
On this issue, the Commissioner confirmed a differential
demand of Rs. 4,81,75,444/-.
6. The Appellant is also a stockist of foreign currency
denominated travellers cheques and prepaid cards. The
Appellant sells such cheques and cards to travellers by fixing
a price for each foreign currency, buying the relevant foreign
currency from authorized dealers and then giving the same
to the issuer whose product, i.e., the cheques and cards, it
has sold. The difference between the sale and purchase
exchange rates represents its profit or loss that the
Appellant would make on such trades. The Appellant also
buys back the unspent balances of foreign currencies
available in such cheques and cards from travellers,
surrenders such cheques and cards to other license-holders
and banks, and thereafter retrieves the value of foreign
exchange available therein. Here, the difference between
sale and purchase exchange rates represents the profit or
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Service Tax Appeal No. 40323 of 2016
the loss of the Appellant. The resulting profit or loss is
described as "profit or loss on settlement." The
Commissioner has found in this respect that this profit forms
a part of the taxable value and hence, confirms the demand
of service tax of Rs.4,60,610/- thereon.
7. The Appellant also sells foreign exchange to holders of
Exchange Earners‟ Foreign Currency (EEFC) accounts on
which it makes a profit. The Commissioner finds that these
transactions involve the activity of the sale of foreign
currency which, in terms of section 65(12) of the Finance
Act, 1994 read with Rule 60(zm) of the Service Tax Rules,
1994 would be a taxable service. A demand of service tax of
Rs.13,88,410/- is thus confirmed in this respect.
8. In this above background, the issues that arise for our
consideration are as follows:
a. Whether the Notification of 2011 would operate
retrospectively so as to permit the Appellant‟s
claim for exemption under the Notification of
2009 for the tax periods from 01.04.2008 to
31.03.2011?
b. Whether the Commissioner is right in finding
that the Appellant ought to have resorted to the
provisions of rule 6(7B) of the Service Tax Rules,
1994 and paid service tax at the rate of 0.25%
on the gross amount of currency exchanged?
c. Whether the Commissioner is right in finding
that the profit on settlement forms a part of the
taxable value of services rendered by the
Appellant? and
d. Whether the profit on the sale of foreign
exchange to holders of EEFC accounts is taxable?
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Service Tax Appeal No. 40323 of 2016
9. We shall now deal with issue (a): Sections
65(105)(zm) and 65(105)(zzk) are reproduced below for the
ease of reference. These Sections define what may be
described as Banking and Financial Services, and the
services of a foreign exchange broker.
"SECTION 65. Definitions. -- In this Chapter, unless the
context otherwise requires, -
....
(105) "taxable service" means any service provided or to be provided, -
(zm) to any person, 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; .... .....
(zzk) to any person, by a foreign exchange broker, including an authorised dealer in foreign exchange or an authorised money changer, other than a banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern referred to in sub-clause (zm);"
10. The Notification No.19/2009 dated 07.07.2009 and the Notification No.27/2001-ST dt. 31.03.2011 are reproduced below for the ease of reference.
"Foreign Currency -- Sale and purchase of, exempted from Service tax for inter-bank transactions In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service, referred to in sub-clause (zm) or (zzk), as the case may be, of clause (105) of section 65 of the Finance Act, provided to a Scheduled bank, by any other Scheduled bank, in relation to inter-bank transactions of purchase and sale of foreign currency, from the whole of the service tax leviable thereon under section 66 of the said Finance Act.
[Notification No. 19/2009-S.T., dated 7-7-2009]"7
Service Tax Appeal No. 40323 of 2016 "Foreign currency -- Service tax exemption to sale and purchase for inter-bank transactions -- Notification No. 19/2009-S.T. amended w.e.f. 1-4-2011 In exercise of the powers conferred by of sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue) No. 19/2009-Service Tax, dated the 7th July, 2009, published in the Gazette of India, Extraordinary, vide number G.S.R. 491 (E), dated the 7th July, 2009, for the words "a Scheduled bank, by any other Scheduled bank", the words "any bank, including a bank located outside India, or money changer, by any other bank or money changer" shall be substituted.
2. This notification shall come into force on the 1st day of April, 2011. [Notification No. 27/2011-S.T., dated 31-3-2011]"
11. It will be seen from the Notification of 2009 that the Interbank transactions of the purchase and sale of foreign currency was made exempt with effect from 07.07.2009. Such services were provided to a scheduled bank by any other scheduled bank. The Notification of 2011 amended the Notification of 2009, to expand the scope of the exemption to services rendered to any bank, including a bank located outside India or money-changer by any other bank or money-changer. This amendment, i.e., Notification of 2011, admittedly came into force with effect from 01.04.2011. The question is whether this amendment is retrospective.
12. In the written synopsis filed by the Appellant, it is submitted that the word „substitute‟ would mean to put one in place of another or to replace, the amendment by the Notification of 2011 makes implicit what was already explicit (sic). It is therefore submitted that the amendment was done only to correct a mistake realized by Government. It is also submitted that the Notification of 2011 is clarificatory in nature as there was no difference in the nature of transactions when carried out by a bank as compared to 8 Service Tax Appeal No. 40323 of 2016 when such transactions are carried out by money changer.
Reliance is placed on the following case law :
(i) Gottumukkala Venkata Krishnamraju Vs Union of India in W.P. (Civil) No.732 of 2018 - *(2019) SCC 590+
(ii) Government of India Vs Indian Tobacco Association in Civil Appeal No.5196 of 2005 - *2005+ 7 SCC 396
(iii) Union of India v. Steel Authority of India Ltd. - 2013 (297) ELT 166 (Chhattisgarh)
(iv) W.P.I.L Ltd v. CCE Meerut - 2005 (181) ELT 359 (SC)
(v) Sujana Metal Products Ltd. Vs CCE Hyderabad -
2011 (273) ELT 112 (Tri.Bang.)
(vi) Belapur Sugar & Allied Indus. Ltd. Vs CCE Aurangabad
- 1999 (108) ELT 9 (SC)
13. Per contra, it is contended by Sri Sanjay Kakkar, ld. Deputy Commissioner appearing for the Respondent-
Commissioner that as the Notification of 2011 clearly states that the same comes into force with effect from 01.04.2011, it could only be prospective in its operation.
14. Having heard the rival contentions, we find that the effect of the Notification of 2011 was to expand the scope of the exemption. Whereas until the Notification of 2011, the exemption was available only to services rendered to a scheduled bank by a scheduled bank, the extent and classes of service providers and service recipients was widened by the Notification of 2011. This cannot, by any stretch of the imagination, be construed as being the Government recognizing a mistake committed on its part. Until 2011, the internship was to cover only such services to the extent they were provided by and to scheduled Banks. After the amendment the intention was to confirm the exemption on a wider class of persons. This is what emerges from literal 9 Service Tax Appeal No. 40323 of 2016 linguistic reading of the amending Notification of 2011. There is no ambiguity or lack of clarity in that Notification which requires us to take recourse to any other principles of interpretation. In our opinion, no two views are possible on this point. Further, the law is well settled that except in matters of procedure, there is a presumption that law operates prospectively unless there is compelling evidence to the contrary, being, inter alia, any express statement to that effect. We find no such intent. The intent of the Notification of 2011 is a change in the legislative policy on to whom such exemption must be granted. This change in policy cannot be lightly held to be retrospective, particularly where there are no express words in the Notification that make it retrospective.
15. Insofar as the case law relied upon by the Appellant is concerned, some of the cases cited are on the question of the nature of a substitution in contradistinction to the nature of an amendment. There is no dispute on this point. There is nothing in the law to suggest that every substitution is necessarily retrospective. It cannot be said that because what has been carried out is a substitution, retrospective must be presumed. Some other cases deal with specific amendments in specific circumstances; and it has not been shown to us that those circumstances are comparable to those we are faced with in this Appeal. Some other cases espouse a liberal interpretation of exemption Notifications and a purposive construction thereof. In our opinion, the question of whether an exemption granted operates retrospectively or prospectively is not one which requires us to choose between a liberal and a strict construction; as 10 Service Tax Appeal No. 40323 of 2016 noted by us herein above, the plain language of the Notification is perfectly clear and there is no ambiguity at all. We must therefore rely only on that language, as there is no ambiguity which is to be resolved at all.
16. For these reasons, on this issue (a), we do not find any infirmity in the impugned order and hence, we uphold the findings of the Commissioner to this extent and dismiss the relevant grounds urged by the Appellant.
17. We shall now consider Issue (b). On this issue, it is the contention of the Appellant that it has charged only Rs.25/- per transaction and that it has discharged applicable service tax due on their own. It is their case that Rule 6(7B) of the Service Tax Rules, 1994 confers an option on the Appellant to discharge service tax in the manner provided for therein. The Appellant relies on the proviso to that Rule to contend that the option will not be available in cases where the consideration for the services provided is shown separately in the invoice issued by the service provider. Reliance is placed on Circular No. 334/1/2008-TRU dated 29.02.2008 in this regard. The Appellant also contends that since it has identified the transaction value in its invoices and discharged service tax thereon, considering that the option being available to the Appellant, the Revenue cannot force the Appellant to exercise or not to exercise that option.
18. The Appellant places reliance on the decision in the case of FCM Travel Solutions (India) Pvt. Ltd. Vs CCE Hyderabad - 2014-TIOL-2694-CESTAT-BANG to contend that a demand based on the ground that the consideration 11 Service Tax Appeal No. 40323 of 2016 charged by the assessee was not up to the expectation of the Revenue was illegal. Reliance was also placed on State Bank of Bikaner & Jaipur Vs CCE Jaipur - 2011 (24) STR 425 (Tri.-Del.) to contend that no service tax would be chargeable on the profit earned on foreign exchange. Reliance was placed on Citi Bank N.A Vs CST Chennai - 2013 (43) STR 445 (Tri.-Chennai) to argue that the mark-up on foreign currency transactions in the case of a credit card is a part of the exchange rate to be applied and hence would be a part of the cost. Reliance is placed on Commissioner of Income Tax Vs Mahinda Mills/Arun Textile 'C'/Humphreys/Glassgow Consultants [2000] 109 Taxman 225 (SC) to contend that the assessee cannot be forced to claim a benefit it does not wish to claim; and on Tiara Advertising Vs Union of India - 2019 (30) GSTL 474 (Telengana) to contend that the assessee cannot be forced to exercise an option.
19. Per Contra, the contention of Sri Sanjay Kakkar is that in terms of the proviso to Rule 6(7B) of Service Tax Rules, 1994, the option would only be available to the assessee where the consideration for the services rendered is shown separately on the invoice. It is the revenue‟s contention that the Appellant devised an ingenious method of indicating a notionally, fixed, minuscule or token amount as a service charge for all purchases and sale transactions of foreign currency without regard to the value of such transaction only with an intent to evade tax. It is stated that the appellant deliberately hid the true consideration resulting in the undervaluation of the consideration for its services. It is his contention that the true consideration was to be found in the 12 Service Tax Appeal No. 40323 of 2016 difference between the exchange rates applied by the appellant and the exchange rates prevailing in the market at that point in time. It is therefore contended that this differential consideration was embedded in the exchange rate of the currency. Specific reliance in this regard was placed on paragraph 4.9 of the impugned order. In Para 4.8 in the table, three transactions are recorded in which the rates of exchange are mentioned. For one of the transactions dated May 19, 2011, the exchange rate applied is Rs.45.55 per US dollar. At paragraph 4.9, the Commissioner finds that the exchange rate available on that date was Rs.45.06. There is also a finding that an additional amount of Rs.1078/-, which was the hidden consideration, had escaped the levy of service tax.
20. Having heard learned counsel for the parties, we find that the specific finding concerning particular transactions which have been recorded in the impugned order may possibly reveal some hidden consideration. However, even if the factual findings of the Commissioner on this point are accurate, such findings are limited to a small number of transactions of the appellant. We find that the revenue has been unable to sufficiently disprove the possibility that this variance could be otherwise justified. In any event, the occurrence of such variance is in a small number of transactions which could be on account of myriad reasons occasioned by particular circumstances. There appears to be nothing forthcoming from the Appellant‟s submissions to explain the reasons for these differences.
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21. Nevertheless, considering that only a very small number of such instances have been pointed out by the Revenue, in our opinion, the evidence on the record does not suggest the existence of a broader scheme devised by the assessee as alleged by the Revenue. The Revenue itself submits that it does not have exact figures to quantify the so-called hidden consideration. Besides all this, in our opinion, the assessee is correct in submission that the option provided under Rule 6(7B) is an option available to it and not to the Revenue. Even if the Revenue was entirely correct, arguendo, in its findings of fact, the proper course of action for the Revenue would have been to determine the quantum of the hidden consideration and charge the same to tax in accordance with the provisions of section 66 and 67. These findings do not permit the Revenue to assign to itself the right to exercise the option under the aforesaid Rule. For these reasons, we agree with the contentions of the Assessee in this respect and allow the relevant grounds of Appeal.
22. We shall now deal with issue (c): it is because of the applicant that the transaction was between the appellant and other licensed entities; Notification No. 19/2009 granted exemption in respect of taxable service referred to in S. 65(105)(zm) or Section 65 (105) (zzk), when provided to a scheduled bank by another scheduled bank in relation to enter bank transactions of purchase and sale of foreign currency. Vijay notification 27/2011, the worlds 'a scheduled Bank by any other scheduled Bank' came to be substituted with the words „any bank, including a bank located outside 14 Service Tax Appeal No. 40323 of 2016 India or money changer, by any other bank or money changer'.
23. Per contra, Shri Sanjay Kakkar relied upon the findings in the original order. We find that our observations in so far as the substitution in the amending notifications is concerned, at paragraph 15 here in above of this order applies squarely and hence, we do not entertain the appellants grounds of appeal to this extent. In the result, the findings in the impugned order so far as this issue is concerned, is sustained.
24. We shall now consider issue (d). It is the case of the appellant that the sales proceeds received from the exchange earns foreign currency account does not involve conversion activity and hence, the same is not liable to service tax under Section 65(12) of the Finance Act, 1994. It was further contended that the appellant would deal with branches of foreign banks in India and therefore, Section 66A cannot be applied. Moreover, the demand in this regard is raised considering all the proceeds shown in the balance sheet, which is incorrect.
25. Per contra, it is the case of the Revenue that the appellant is only trying to justify the non-levy of service tax for corporate customers who maintain EEFC accounts by stating that the foreign currency provided by the appellant to such customers is returned by them from the same accounts thereby making it a neutral transaction where it is claimed that no currency conversion is involved. This may be true in so far as the transaction is concerned, but the same 15 Service Tax Appeal No. 40323 of 2016 cannot be accepted from the service tax perspective since service element is involved in each transaction. Transaction of providing foreign currency and the transaction of repayment of proceeds are separate transactions happening at two distinct points of time and hence, the liability has been correctly fastened on the appellant. We find that there is no flow of consideration in terms of money on these transactions since there is no conversion as such and hence, the same would not be taxable. Hence, we agree with the contentions of the Ld. Advocate and hold that the demand in this regard cannot sustain.
26. Appeal stands partly allowed as indicated above.
(Order pronounced in the open court on 17.01.2025) sd/- sd/-
(M. AJIT KUMAR) (P. DINESHA) Member (Technical) Member (Judicial) gs