Appellate Tribunal rules in favor of appellant in service tax dispute

The Appellate Tribunal CESTAT, CHENNAI ruled in favor of the appellant in a dispute over a service tax demand of over Rs. 2.49 crores under the "Banking and Other Financial Services" category for the period August 2002 to March 2006. The Tribunal found that the appellant, acting as the Acquiring Bank for VISA card transactions, was not liable to pay service tax on the amounts paid to VISA. A waiver of pre-deposit and a stay of recovery were granted for the service tax, interest, and penalties pending further proceedings.

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Issues:
Demand of service tax under the head "Banking and Other Financial Services" (BOFS) for the period August 2002 to March 2006.

Analysis:
The judgment delivered by the Appellate Tribunal CESTAT, CHENNAI involved a dispute regarding the demand of service tax amounting to over Rs. 2.49 crores from the appellants under the category of "Banking and Other Financial Services" (BOFS) as per section 65(12) of the Finance Act, 1994, for the period between August 2002 to March 2006. The ld. Commissioner imposed penalties on the appellants in addition to the tax demand. The essence of the case revolved around the transactions related to VISA cards issued by Citibank to customers and utilized for shopping purposes. The appellant, acting as both an 'Issuing Bank' and 'Acquiring Bank,' would acquire the debt arising from the shopping transactions made using VISA cards. The service tax demand was based on the gross amount paid by the Acquiring Bank to VISA during the disputed period. The appellant contended that the service received from VISA was in the nature of "settlement" as per clause (33a) of section 65 of the Finance Act, 1994, inserted on 1-5-2006, and therefore, the levy was not applicable before this date.

The appellant argued that the transactions between the Acquiring Bank and VISA were akin to the services rendered by the Acquiring Bank to Merchant Establishments. They highlighted a similar demand that was dropped by the Commissioner in a previous order concerning credit card services. The appellant also pointed out that VISA had offices in India during the relevant period, suggesting that any service tax liability should have been imposed on VISA directly as per the provisions existing prior to 18-4-2006 when section 66A was inserted in the Finance Act, 1994. The appellant relied on a precedent where services provided from outside India before 18-4-2006 were deemed non-exigible to service tax in the hands of the service-recipient in India.

After thorough consideration of the submissions and arguments presented, the Appellate Tribunal found a prima facie case in favor of the appellant against the demand of service tax and penalties. The Tribunal acknowledged the explanations provided by the ld. consultant regarding the operation of VISA cards and concluded that the appellant, acting as the Acquiring Bank, was not liable to pay service tax under the "BOFS" category for the amount paid to VISA during the relevant period. The Tribunal granted a waiver of pre-deposit and a stay of recovery concerning the service tax, interest on tax, and penalties, pending further proceedings.

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