Banks can claim CENVAT credit on ATM services despite providing free transactions to customers

CESTAT Bangalore allowed the appeal regarding CENVAT credit admissibility. The tribunal held that credit availed on NPCI transaction statements for 2010-15 was admissible, rejecting revenue's argument about procedural non-fulfillment. The court ruled that denial of credit merely because ATM transactions were provided free to customers was unsustainable. The adjudicating authority had previously allowed similar credit for the subsequent period 2015-17, which revenue accepted. The impugned order was set aside, establishing that banks can claim CENVAT credit on ATM services regardless of customer charging practices.

---

---

The core legal questions considered by the Tribunal in this appeal are:

1. Whether cenvat credit availed on the basis of transaction statements downloaded from the National Payments Corporation of India (NPCI) website is admissible under Rule 9 of the Cenvat Credit Rules (CCR), 2004, for the period 2010-11 to 2014-15.

2. Whether cenvat credit can be denied on the ground that the activities undertaken by the appellant did not qualify as input services, specifically relating to ATM transactions that were provided free of charge to customers during the period 01.07.2012 to 31.03.2015.

3. The correctness of the penalty imposed under Sections 76 and 77 of the Finance Act, 1994, for alleged irregular availment of cenvat credit.

Issue-wise Detailed Analysis

Issue 1: Admissibility of Cenvat Credit Based on NPCI Transaction Statements

Relevant Legal Framework and Precedents: The primary legal provisions involved are Rule 9 of the Cenvat Credit Rules, 2004, which governs the conditions for availing cenvat credit, and Rule 4A of the Service Tax Rules, 1994, which specifies the particulars required in documents evidencing payment of service tax. The Tribunal also referred to judicial precedents such as the ruling in HIM Cylinders (P) Ltd. Vs Commissioner of Central Excise, Chandigarh, where it was held that minor procedural lapses in documentation cannot be a ground for denial of cenvat credit.

Court's Interpretation and Reasoning: The Tribunal observed that NPCI is a statutory body functioning under the Reserve Bank of India (RBI) and acts as an interface facilitating cross-bank ATM transactions. The transaction statements generated by NPCI are electronic in nature and contain all requisite particulars as mandated under Rule 4A, including the name and address of the acquiring bank, registration number, taxable service amount, service tax payable, and period of service provision. Although the statements lacked a serial number and signature of the service provider/acquiring bank, the Tribunal found this to be a minor procedural deficiency.

Key Evidence and Findings: The adjudicating authority's earlier order for the subsequent period (April 2015 to June 2017) had accepted the admissibility of cenvat credit based on NPCI statements, and this finding was not challenged by the revenue. The Tribunal relied on this precedent within the appellant's own case to hold that the same reasoning applies for the earlier period (2010-11 to 2014-15).

Application of Law to Facts: The Tribunal applied the principle that procedural non-compliance should not result in denial of credit if the substantive conditions are met. Since NPCI is a government entity generating the statements and no discrepancies were found in audit verifications, the credit availed on the basis of such statements was held to be valid.

Treatment of Competing Arguments: The revenue's contention that credit should be denied due to lack of signature and serial number was rejected on the ground that these are minor procedural lapses not affecting the legitimacy of the credit claim. The Tribunal emphasized that the credit should not be denied merely on such technical grounds.

Conclusion: Cenvat credit availed on the basis of NPCI transaction statements for the period 2010-11 to 2014-15 is admissible under Rule 9 of CCR, 2004.

Issue 2: Denial of Credit on the Ground that Output Services (ATM Transactions) Were Provided Free of Charge

Relevant Legal Framework and Precedents: The issue relates to the definition of input services under the Cenvat Credit Rules and the principle that credit is admissible only if the input service is used in the course or furtherance of taxable output services. The Tribunal examined the role of NPCI and acquiring banks as service providers facilitating ATM transactions.

Court's Interpretation and Reasoning: The Tribunal noted that NPCI provides intermediary and supportive services enabling cross-bank ATM transactions and charges the banks for these services irrespective of whether the banks levy charges on their customers. The issuing bank pays interchange fees to the acquiring bank even when it does not collect fees from customers due to RBI regulations.

Key Evidence and Findings: The adjudicating authority's order for the subsequent period recognized that although ATM transactions were free to customers, the banks incurred service charges payable to NPCI and acquiring banks. The Tribunal found that these service charges constituted a provision of service and were subject to service tax, thus qualifying as input services.

Application of Law to Facts: The Tribunal applied the principle that bundled services rendered by banks include both chargeable and free services, but the input services used in providing these bundled services remain eligible for credit. The fact that customers were not charged for some ATM transactions does not negate the bank's liability to pay service charges to NPCI or acquiring banks, thereby validating the credit claim.

Treatment of Competing Arguments: The revenue's argument that credit should be denied because no consideration was received from customers was rejected. The Tribunal emphasized the economic reality of the service chain and the statutory framework regulating ATM charges.

Conclusion: Cenvat credit availed by the bank in respect of ATM transactions provided free of charge to customers is admissible.

Issue 3: Penalty Imposed under Sections 76 and 77 of the Finance Act, 1994

The Tribunal did not specifically address the penalty issue in detail, but by setting aside the demand of cenvat credit wrongly availed, the penalty imposed on the same was implicitly set aside. The acceptance of the adjudicating authority's order for the subsequent period by the revenue without appeal further supports this outcome.

Significant Holdings

"The legitimacy of the e-statement cannot be questioned as the same is generated by the NPCI which is a government body. Further, no discrepancy with regard to the data generation and consequential payment of the service tax by the NPCI as well as the service provider banks have been recorded or reported in the verification carried out by the Audit."

"There are several case laws herein it has been explicitly stated that the availment of Cenvat credit should not be denied on account of procedural non-fulfilment."

"NPCI provides the intermediary network searching and other supportive services when a transaction is made in an ATM... Even in respect of charge free ATM transaction also the NPCI collects the service charge from the bank."

"Each and every ATM transaction there is a provision of service (by the service provider) and there is a levy of service charge (from the recipient of service). Accordingly I am of the view that availment of Cenvat credit by the bank in respect of the ATM transaction on which no charges are levied by the bank from their customers is admissible."

The Tribunal's final determinations are that the cenvat credit availed on the basis of NPCI transaction statements for the period 2010-11 to 2014-15 is admissible, and the denial of credit on the ground that ATM transactions were free of charge to customers is unsustainable. Consequently, the impugned order denying credit and imposing penalty is set aside with consequential relief.

---