Custom, Excise & Service Tax Tribunal
M/S. Syndicate Bank vs Cce, Mangalore on 6 May, 2010
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing: 06/05/2010
Date of decision:06/05/2010
Appeal No.ST/375/08
(Arising out of Order-in-original No.10/2008 dt. 25/4/2008
passed by CCE, Managalore )
For approval and signature:
Honble Mr. M.V.Ravindran, Member(Judicial)
Honble Mr. P.Karthikeyan, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
No
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
M/s. Syndicate Bank
..Appellant(s)
Vs.
CCE, Mangalore
..Respondent(s)
Appearance Mr. S.Ananthan, Chartered Accountant for the appellant.
Ms. Joy Kumari Chander, Jt.CDR for the Revenue.
Coram:
Honble Mr. M.V.Ravindran, Member(Judicial) Honble Mr. P.Karthikeyan, Member(Technical) FINAL ORDER No._______________________2010 Per M.V.Ravindran This appeal is directed against the Order-in-original No.10/2008 dt. 25/4/2008.
2. The relevant facts that needs consideration in this case are that the appellants herein are holders of service tax registration for payment of service tax on Banking & Other Financial Services (BOFS) rendered by them. They have more than 2000 branches and 35 regional offices all over India. Based upon the audit that was conducted, it was noticed by the lower authorities that the appellant was making short payment of the service tax on the service charges collected by them by declaring lower value of the taxable service in the statutory returns. Investigation was conducted. Statements of various persons were recorded. On completion of the investigation, it appeared that the appellant had short paid the service tax in respect of the BOFS and that they had not discharged the service tax liability under the head Business Auxiliary Service (BAS) for Cash Management Service (CMS) and also for Management Consultancy Service (MCS). Show cause notice was issued. The appellant contested the show cause notice before the authorities and adjudicating authority after considering the representations made, came to the conclusion that the demands raised in the show cause notice are correct and hence confirmed the demands and imposed penalties under various sections and ordered for the interest.
3. Ld. Chartered Accountant appearing on behalf of the appellant would submit that
a) as regards difference in valuation of the taxable service, he would submit that there is no difference in the value of taxable services, as can be noticed from re-conciliation of the amount demanded and confirmed by the authority. It is submitted that the authorities have confirmed the demand on the miscellaneous income which was shown in the balance sheet. It is his submission that miscellaneous income cannot be considered as services and he would draw our attention to the re-conciliation statement produced by him. He, on a specific query from the Bench, fairly concedes that this re-conciliation statement was not produced before the adjudicating authority.
b) As regards the CMS, he would submit that the said CMS is now brought into the BOFS and now they are discharging the service tax liability. It is his submission that the period involved in this case is 1/7/2003 to 31/3/2007 during which time the CMS were excluded from the services of BOFS. He would submit that the Revenue authorities efforts to put the services under BAS is now been held against the Revenue by the decision of this Bench in the case of Federal Bank Ltd. Vs. CCE, Calicut [2008(14) STT 231 (Bang.- CESTAT)]. Hence, he submitted that it is not liable to be taxable under the BAS.
c) As regards the MCS, he would draw our attention to the adjudicating authoritys order and try to show that the services which were rendered by the appellant were never in form of MCS. He would submit that the appellant herein had entered into contract with M/s. Musundam Exchange, Sultanate of Oman and M/s. National Exchange Company, Qatar for providing a person for managing the exchange in Oman and Qatar. It is his submission that the person who has been appointed there will be as a Manager and an employee of the appellant. He would submit that for the purpose of managing the said exchange in Oman and Qatar they were getting an amount as consideration for the services rendered in form of share of income. It is his submission that they received the amount in foreign exchange which itself is not liable for taxable under the Finance Act, 1994. It is his further submission that the services which were rendered by the person appointed by the appellant was in Qatar and Oman, which is outside the territorial waters of India and as such, service tax liability does not arise.
3.1. In view of these, he would submit that the impugned order be set aside and appeal be allowed.
4. Ld. Jt.CDR would fairly submit, that as regards the CMS and MCS, the issue is squarely covered by the decision of this Bench. As regards the BOFS, it is her submission that the appellant did not provide any evidence before the lower authorities as regards the miscellaneous income. It is her submission that any income which shown in the balance sheet of the appellant would be considered as an income arising out of the BOFS as the appellant is a bank. Since, no evidence was provided before the adjudicating authority, the adjudicating authority was correct in confirming the demand.
5. After considering the submissions made at length by both sides and perusal of the records, we record our findings as under:
I) As regards the CMS, we find that the adjudicating authority has recorded the following findings:-
24. .. Cash management services are offered by Syndicate Bank to specific corporate customers who avail the services as per the agreement. This service is meant to manage the funds of specified clients, and the clients benefit by way of fasters, time bound and specific service and the instant transfer of fudns at competitive rates etc. Business auxiliary Services was brought under the Service Tax net w.e.f. 1/7/2003 vide Notification No.7/2003 ST dt. 20/6/2003. This included all along, procurement of goods or services, which are inputs (i.e. all goods or services intended for use by the client) for the client, and a service incidental or auxiliary to it such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to manufacture. . .. It can be seen that the above recorded findings are contrary to the findings recorded by us in the decision of the Federal Bank Ltd. case (supra), wherein the Bench held as under:-
6. .. .As can be seen from the definition of business auxiliary service, as extracted above, the activity has to be that of promotion or marketing or sales of goods produced or provided by or belonging to the client. The other categories, akin to the same activity is defined under italic (i) to italic (vi). Reference to services incidental or auxiliary to any of the activities specified in italic (vii). Basic activity should be that of promoting or marketing of sale of goods produced and in that connection if the activity of billing, issue of collection or recovery of cheques, payments, maintenance of accounts and remittances etc., are done then they come within the main category of business auxiliary services. I am required to see as to whether the appellants at all are carrying on the activity of promotion, marketing or sale of goods produced and any activity incidental or auxiliary to the activities mentioned under business auxiliary service.
7.?On a careful consideration I find that appellants have permitted their client BSNL to allow their customers to deposit the bill amounts. This activity is a simple operation of account done by the customers of their client which does not have any connection with any of the activities defined under business auxiliary service or promoting or marketing of sale of goods produced or provided by or belonging to the client and any activity incidental to that. The basic activity of promoting or carrying on of sale of goods should be there and the collection of cheques should be in connection with this activity. In this case, the collection of cheques is not in connection with promotion or marketing of sale of goods. Therefore merely because the customers of the client are depositing the cheques into the clients account, it cannot be said to be coming within the category of business auxiliary service, more particularly under italic (iii). It cannot be independent of that category. Such an activity is not found in the present case. The definition of banking and other financial service clearly indicate with regard to the asset management and also refers to the asset management in the category of italic (v) of the definition. It also refers to depository and trust services but does not include cash management. The appellants activity is in the category of cash management inasmuch as the clients are operating their accounts and cash flow of the client is coming to the clients account. Therefore, the activity is that of cash management which is excluded from banking and other financial services. The appellants have made out a case that they are not covered under the category of customer case (sic) (care) service in the main category of business auxiliary service and hence their contention is required to be accepted. The above said decision has not been stayed by any higher court. The facts in that case and the facts in this case are similar and respectfully following the same, we hold that the service tax liability on the appellant under the head BAS for CMS rendered is unsustainable and is liable to be set aside. We set aside that portion of the impugned order and also the consequent penalties wherein the adjudicating authority has held that the CMS are falling under the BAS.
II) As regards the MCS charges collected by the appellant and sought to be taxed by the adjudicating authority, the adjudicating authority has recorded the following findings:-
It can be seen that there is no dispute that the services which are rendered by an appointment of Manager in the exchange at Qatar and Oman. This undisputed point would indicate that the services rendered by such person as an appointee of the appellant was required to render services outside the territorial waters of India. We find strong force in the contention raised by the ld. Chartered Accountant that Circular No.36/4/2001 dt. 8/10/2001 will squarely cover the issue in the appellants favour as the service tax liability in this case is prior to 10/5/2007. We reproduce the circular:-
Service Tax Services provided outside the limits of Indian territorial waters not liable to tax Service Tax Circular No. 36/4/2001, dated 8-10-2001 F. No. 137/2/2000-CX. 4 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi I am directed to say that question has arisen whether services provided outside the limits of the Indian territorial waters are liable to Service Tax or not.
The matter has been examined. At present the levy of service tax extends to the whole of India except the State of Jammu and Kashmir. The expression India includes the territorial waters of India. Indian territorial waters extend up to twelve nautical miles from the Indian land mass. Chapter V of the Finance Act which governs the levy of Service Tax has not extended to the levy to designated areas in the Continental Shelf and the Exclusive Economic Zone of India (as has been done in case of Central Excise vide Notification No. 166/87-C.E., dated 11-6-87 and in case of Customs by Notification Nos. 11/87-Cus., Dated 14-1-87 & 64/97-Cus., dated 1-12-97). It is, therefore, clarified that the services provided beyond the territorial waters of India are not liable to Service Tax as provisions of Service tax have not been extended to such areas so far.
Trade and field formations may be advised accordingly.
Receipt of this Circular may please be acknowledged.
Hindi version will follow. On this point itself, the demand raised under the MCS can be set aside. At the same time, we also find strong force in the contention raised by the ld. Chartered Accountant that what appellant provide is not a Management Consultancy Services. On perusal of the agreement entered into by the appellant with M/s. Musundam Exchange, we find that the said Musundam Exchange had requested the appellant to conduct the business of foreign exchange at their branch with the personnel appointed by the appellant. The said agreement clearly indicates that the Manager i.e. appellant shall manage the affairs of the business like manner, generally provide exchange company managerial assistance etc. and will run day to day activities which is very clearly narrated in the agreement under the clause Chief Executive: His role and functions. Mere perusal of the agreement would indicate that the said agreement is for running the exchange on day to day, by the appellant, because of his expertise in managing the bank and other financial services. This agreement, in our considered view, cannot be considered as services rendered under MCS. On both grounds i.e. services which were rendered by the appellant was outside the territorial waters of India and in a foreign country, and for the reason that the services would not have get covered under the category of MCS, the impugned order to the extent it upholds the demand on this issue, is unsustainable and hence is set aside. Consequent penalties and interest arising out of such confirmed demand are also liable to be set aside. We set aside that portion of that order which confirmed the demand raised on the appellant under the category of MCS.
III) As regards the confirmation of the demand on the BOFS, we find basically the demand has been raised and confirmed by the lower authorities only on the findings that miscellaneous income which has been shown in the balance sheet of the appellant are nothing but arising out of the services, which are rendered by the appellant. On casual perusal of the re-conciliation statements which have been shown by the ld. Chartered Accountant, we find that these miscellaneous incomes may not be arising out of the services rendered by the appellant. Since this re-conciliation statement was not produced before the authorities and is produced before us first time, we would not like to record any findings on the same and let the adjudicating authority to do so after verifying the records. In view of this, without expressing any opinion on the merits of this point, we set aside the impugned order to the extent it confirms the demands of service tax raised under the category of BOFS and remand the matter back to the adjudicating authority to re-consider the issue afresh and after following principles of natural justice, keeping all issues open as regards the service tax liability under BOFS.
5. The appeal filed by the appellant is disposed off as indicated herein above.
(Operative portion of this order pronounced on conclusion of the hearing) (P.KARTHIKEYAN) Member (Technical) (M.V. RAVINDRAN) Member (Judicial) Nr ??
??
??
??
10