Bank liable for service tax on salary disbursement services to government schools under Banking and Financial Services category

CESTAT Kolkata held that appellant bank was liable for service tax on charges collected for salary disbursement services to state government schools under Banking and Financial Services category, as no specific exemption exists for state government services. However, extended period of limitation was rejected due to lack of evidence of suppression. Demands for service tax on agricultural insurance premium collection were set aside as exempted under Notification 3/2000-ST. Service charges on outstation cheque collection and wrongly deducted banking cash transaction tax were also held non-taxable. Appeal partially allowed with service tax liability limited to normal limitation period.

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Issues involved:
The appeal against the Order-in-Appeal dated 30.03.2013 filed by the Appellant, challenging the demand of Rs.22,26,137/- confirmed in the Order-in-Original along with interest and penalties imposed under Sections 76 and 78 of the Finance Act, 1994.

Issue 1: Demand under 'Banking and Financial Services' category
The impugned order demanded service tax on the differential amount of Rs.1,85,06,413/- received by the Appellant as service charges for disbursing salary in two primary schools. The Appellant argued that the service was rendered on behalf of the state government and was only to defray bank expenses, hence not falling under 'Banking and Financial Services' as defined under Section 65(12) of the Finance Act, 1994. However, the Tribunal held that no specific exemption was provided for services rendered by banks to state governments. Therefore, the service charges collected were deemed liable for service tax under the mentioned category.

Issue 2: Time-barred demand
The Appellant contended that the demand was time-barred as there was no suppression involved, making the demand invoking the extended period not sustainable. The Tribunal found merit in this submission, noting that the demand was based solely on information from the balance sheet without evidence of suppression. Consequently, the demand confirmed by invoking the extended period was deemed unsustainable, and the Appellant was held liable to pay service tax within the normal period of limitation, along with interest.

Issue 3: Exemption for services related to Agricultural Insurance
The demand on receipts from Agricultural Insurance Company of India Ltd. for collecting crop insurance premium was challenged by the Appellant, citing exemption under Notification 3/2000-ST dated 06.07.2000. The Tribunal, following a relevant decision, concluded that the services provided by the Appellant for insurance under government schemes were eligible for exemption under the notification. Therefore, the demand on this count was deemed unsustainable, and the appeal was allowed.

Issue 4: Service charges by outstation banks
Regarding the demand for service tax on charges deducted by outstation banks for collecting outstation cheques, the Tribunal observed that the Appellant did not receive any money from this activity. As a result, the demand on this count was considered unsustainable.

Issue 5: Banking cash transaction tax
The demand on the amount of Rs.43,500/- deducted by State Bank Of India, Midnapore Branch as banking cash transaction tax was found to be wrongly deducted and later credited back to the Appellant's account. Therefore, no service tax was deemed payable on this amount, making the demand on this count unsustainable.

In conclusion, the Tribunal held the Appellant liable for service tax on service charges under the 'Banking and Financial Services' category within the normal period of limitation. The demand on receipts from Agricultural Insurance Company was set aside, along with the demands related to service charges by outstation banks and banking cash transaction tax. Penalties imposed were also set aside, and the case was remanded back for quantification of the demand under the 'Banking and Financial Services' category.

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