Tribunal decision: Service tax upheld on Nostro & SWIFT transactions, set aside for Vostro

The tribunal upheld the demand of service tax on Nostro transactions after 18.04.2006 but set aside the penalty. For SWIFT transactions, the demand before 18.04.2006 was set aside, while the demand after that date was upheld, with the penalty also set aside. The demand for service tax on Vostro transactions was entirely set aside. The appellant's appeal was disposed of accordingly, with any consequential reliefs granted.

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Issues Involved:
1. Demand of Service Tax (ST) on Nostro transactions.
2. Demand of Service Tax (ST) on Vostro transactions.
3. Demand of Service Tax (ST) on SWIFT transactions.

Detailed Analysis:

1. Demand of Service Tax on Nostro Transactions:

The appellants were engaged in providing Banking and Financial services and maintained Nostro accounts with foreign banks. The department issued a Show Cause Notice (SCN) dated 17.08.2010, proposing to demand service tax under the reverse charge mechanism. The original authority confirmed the service tax payable for the period April 2005 to March 2010. The appellant paid the service tax for the period after 18.04.2006 along with interest on 16.02.2010 and did not contest the demand for this period, only challenging the penalty imposed. The tribunal noted that the appellant had discharged the service tax along with interest before the issuance of the SCN and held that the penalty imposed was unwarranted and set it aside.

2. Demand of Service Tax on SWIFT Transactions:

The appellant utilized the services of SWIFT, Belgium, for exchanging financial information securely. The department alleged these transactions were taxable under "Banking and Financial Services." The SCN mentioned sub-clauses (viii) and (ix) of Section 65 (12), but the Commissioner confirmed the demand under sub-clause (vii), stating the wrong mention of sub-clauses was an error. The tribunal found that SWIFT services, used for sending secure information/data, fall under sub-clause (vii) of "Banking and Financial Services" and are taxable. However, the demand for the period prior to 18.04.2006 was set aside, following the Indian National Shipowner's Association case. The penalty for the period after 18.04.2006 was also set aside, considering the contentious nature of the issue.

3. Demand of Service Tax on Vostro Transactions:

The appellant maintained Vostro accounts for foreign banks, facilitating payments in local currency (INR). The department argued that these services did not qualify as export of services since the consideration was received in Indian currency. The tribunal noted that the inward remittances were in convertible foreign currency, and the charges were retained in Indian currency, satisfying the condition of receipt in foreign currency. The tribunal referred to the Board Circular No. 111/5/2009-ST and the Paul Merchants case, which clarified that such transactions qualify as export of services. Consequently, the demand on Vostro transactions was set aside in entirety.

Conclusion:

a) The demand of service tax on Nostro transactions after 18.04.2006 is upheld, but the penalty is set aside.
b) The demand of service tax on SWIFT transactions prior to 18.04.2006 is set aside. The demand after 18.04.2006 is upheld, but the penalty is set aside.
c) The demand of service tax on Vostro transactions is set aside in entirety.

The appeal is disposed of accordingly with consequential reliefs, if any.

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