2025 (6) TMI 1587 - AT - Service Tax

Banking cash transaction tax reimbursements qualify as export of services under Business Auxiliary Service exemption

Unimoni Financial Services Limited (Formerly UAE Exchange & Financial Services Ltd) Versus Commissioner of Central Excise, Cochin

CESTAT Bangalore allowed the appeal, setting aside service tax demands on banking cash transaction tax reimbursements under Business Auxiliary Service, ... Levy of service tax - Banking Cash Transaction Tax - export of service or not - Short payment of service tax under ‘Business Auxiliary Service’, on reimbursements of 'banking cash transaction tax' - demand under 'Business Auxiliary Service' - availment of ineligible cenvat credit or not - invoction of extended period of limitation - Levy of penalty. Levy of service tax - Banking Cash Transaction Tax - export of service or not - HELD THAT:- The issue is no more res-integra and issue is settled by the Tribunal in the matter of Muthoot Fincorp Ltd. Vs. Commr. of C.Ex. Visakhapatnam, [2009 (8) TMI 236 - CESTAT, BANGALORE], where it is held that 'The said Western Union charges fee from the person who is situated outside India and pays WFL some amount as commission and WFL pay current appellant a part of the amount as compensation. In the whole transaction it can be seen that the services rendered by the appellant of money transfer is directly to Western Union. If that be so, it can be said that the appellant is providing the services to Western Union whose beneficiaries are outside India.' While considering the above issue, Tribunal has also considered the Circular issued by the Board dated 24.02.2009 regarding applicability of provisions of the Export of Service Rules, 2005 and held that services rendered by the appellant cannot be taxed under the category of 'business auxiliary services'. Considering the evidence produced by the appellant as part of the appeal memorandum and reply to Show Cause Notice, the amount received by the appellant directly from client abroad, and benefit of services accruing to person outside India. Hence, service tax was not payable under ‘Business Auxiliary Service’. Short payment of service tax under the category of 'Business Auxiliary Service' on reimbursements of the Banking Cash Transaction Tax (BCTT) - HELD THAT:- Considering the details furnished by the appellants, and also as per Sub-rule (4A) of Rule 6 of Rule 4(2) Service Tax Rules, 1994 the excess amount paid to the Central Government towards service tax for a month or quarter was allowed to be adjusted as service tax against the service tax liability of subsequent month or quarter. Thus, there is no omission on the part of appellant to allege short payment of Rs. 7,80,642/-. Ineligible Cenvat credit of Rs. 3,26,997/- - HELD THAT:- The cenvat credit claimed by the appellant does not fall under the exclusion category as per the definition of input service and appellant is eligible for the same. Invocation of extended period of limitation and imposition of penalty - HELD THAT:- There is no suppression of facts to invoke the extended period of limitation, since the issue is on interpretation of an issue and not suppression of facts. It is well settled that where there is a dispute prevailing in the matter of classification of products, the appellant cannot be held guilty of suppression or misstatement and hence charge of suppression is not sustainable and extended period cannot be invoked. Similarly in the matter of Jayaprakash Industries Ltd. Vs. Commissioner of Central Excise, Chandigarh [2002 (11) TMI 92 - SUPREME COURT], the Apex Court held that when there is a bona fide doubt about the tax liability on the goods due to diverging views of the courts, extended period of limitation is not invocable. Conclusion - i) The demand of service tax on reimbursement of BCTT under BAS is set aside as the service constituted export of service and reimbursements were not taxable. ii) The demand under 'Business Auxiliary Service' and 'Banking and Other Financial Services' on mutual fund-related receipts rejected as the appellant was not a mutual fund distributor or agent. iii) The appellant is entitled to the Cenvat credit claimed on office equipment and related inputs; the demand for recovery is unsustainable. iv) The extended period of limitation and penalties imposed are not justified and are set aside. The impugned order is set aside and the appeal is allowed. The core legal questions considered by the Tribunal in the appeal are:(i) Whether there was short payment of service tax under the category of 'Business Auxiliary Service' on reimbursements of the Banking Cash Transaction Tax (BCTT);(ii) Whether the demand of service tax under 'Business Auxiliary Service' and 'Banking and Other Financial Services' was valid;(iii) Whether the appellant had availed ineligible Cenvat credit;(iv) Whether the extended period of limitation and penalties under Sections 76 and 78 of the Finance Act, 1994 were rightly invoked against the appellant.Issue-wise Detailed Analysis1. Short Payment of Service Tax on Reimbursement of Banking Cash Transaction Tax (BCTT) under 'Business Auxiliary Service'The relevant legal framework includes the Finance Act, 1994, particularly the provisions relating to service tax under 'Business Auxiliary Service' (BAS), and the Export of Service Rules, 2005. The appellant contended that the BCTT was a statutory levy paid by them and subsequently reimbursed by their clients. The appellant argued that the service rendered was an export of service under the Export of Service Rules, 2005, as the ultimate service recipients were principals located in UAE, and the benefit of the service accrued outside India. Therefore, the amount reimbursed as BCTT should not be subject to service tax.The Tribunal referred to precedents such as Muthoot Fincorp Ltd., UAE Exchange and Financial Services Ltd., and Kerala State Financial Enterprises Ltd., which held that such transactions constituted export of service and were not taxable under BAS. The Tribunal also relied on the Supreme Court judgment in Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd., which clarified that reimbursements of expenses prior to the amendment of Section 67 of the Finance Act, 2007, did not form part of the taxable value for service tax purposes.The adjudicating authority's finding that the appellant had not received foreign exchange and that the reimbursement formed part of taxable value was found to be factually incorrect and legally unsustainable. The Tribunal applied the law to the facts, noting the appellant's production of foreign inward remittance certificates and the contractual arrangements indicating the service was rendered to principals abroad. The Tribunal rejected the Revenue's contention that all expenditures must form part of valuation, emphasizing the settled position that reimbursement of statutory levies like BCTT does not attract service tax prior to the relevant amendment.Accordingly, the Tribunal concluded that there was no short payment of service tax on BCTT reimbursements under BAS.2. Demand under 'Business Auxiliary Service' and 'Banking and Other Financial Services'The appellant challenged the demand of service tax on income received from mutual fund-related transactions and other financial advisory services, asserting that they were not mutual fund distributors or agents and thus not liable under BAS or 'Banking and Other Financial Services'. The relevant provisions included Section 65(12) of the Finance Act, 1994, defining 'Banking and Other Financial Services', and Rule 2(1)(d)(vi) of the Service Tax Rules, 1994.The Tribunal examined the classification of services rendered, relying on the decision in Ashok and Co. Pan Bahar Ltd. and Sunrise Traders, which held that only mutual fund distributors or agents are liable for service tax on mutual fund distribution commissions. Since the appellant was neither, the demand under BAS was not sustainable.Regarding the demand under 'Banking and Other Financial Services', the Tribunal noted that the appellant's activities did not involve advisory or portfolio management services as defined under Section 65(12). The Tribunal observed that the Revenue failed to discharge the burden of proof to classify the appellant's receipts as taxable under this category. The Tribunal also referred to Rule 3(2)(b) of the Export of Service Rules, 2005, noting that the appellant satisfied the conditions for export of service, further negating the demand.Thus, the Tribunal held that the demand under both categories was not justified.3. Availment of Ineligible Cenvat CreditThe issue concerned whether the appellant was entitled to Cenvat credit on office equipment and related inputs used for providing output services. The relevant legal framework was the Cenvat Credit Rules, 2004, particularly the definition of 'capital goods' under Rule 2(a), and Circular No. 120/01/2010-ST.The appellant argued for a purposive interpretation of the definition, highlighting that office equipment was essential for rendering output services and thus eligible for credit. The Tribunal referred to precedents such as Semco Electric Pvt. Ltd. and Red Hat India Pvt. Ltd., which supported a broad and purposive approach to eligibility for credit.The adjudicating authority's narrow interpretation was rejected, and the Tribunal held that the appellant was entitled to the Cenvat credit claimed. The demand for recovery of ineligible credit was therefore unsustainable.4. Invocation of Extended Period of Limitation and PenaltiesThe appellant contended that there was no suppression or intention to evade tax, as the issues involved were matters of interpretation and had been disputed in various decisions. The relevant provisions were Sections 73(2), 75, 76, 78, and 80 of the Finance Act, 1994.The Tribunal noted that extended period of limitation under Section 73(2) applies only in cases of willful suppression. Since the appellant had a bona fide belief based on prevailing judicial precedents that service tax was not payable on the disputed transactions, no suppression was established. The Tribunal relied on the Supreme Court decision in Jayaprakash Industries Ltd., which held that extended limitation is not invocable where there is bona fide dispute on tax liability.Furthermore, the Tribunal observed that penalties under Sections 76 and 78 should not be imposed when there is reasonable belief regarding non-taxability, and the adjudicating authority ought to have considered Section 80, which provides for waiver of penalties in such cases.The Tribunal concluded that invoking extended limitation and imposing penalties were unsustainable.Significant Holdings'It is undisputed that the appellant herein does not charge any amount as commission or fee from the recipients of the amount. The said Western Union charges fee from the person who is situated outside India and pays WFL some amount as commission and WFL pay current appellant a part of the amount as compensation. In the whole transaction it can be seen that the services rendered by the appellant of money transfer is directly to Western Union. If that be so, it can be said that the appellant is providing the services to Western Union whose beneficiaries are outside India.'This principle established that services rendered to principals abroad, with benefit accruing outside India, constitute export of service and are not taxable under BAS.The Tribunal reaffirmed that reimbursements of statutory levies such as BCTT prior to amendment of Section 67 of the Finance Act, 2007 do not form part of taxable value for service tax purposes.It was held that only mutual fund distributors or agents are liable to pay service tax on mutual fund distribution commissions, and a party not registered as such cannot be taxed under BAS or 'Banking and Other Financial Services' for such receipts.The Tribunal emphasized a purposive interpretation of the Cenvat Credit Rules, allowing credit on office equipment essential for providing output services, rejecting narrow interpretations that deny such credit.Regarding limitation and penalties, the Tribunal held that extended period of limitation cannot be invoked in cases of bona fide disputes and that penalties should be waived where there is reasonable belief in non-taxability, invoking Section 80 of the Finance Act, 1994.Final determinations:The demand of service tax on reimbursement of BCTT under BAS was set aside as the service constituted export of service and reimbursements were not taxable.The demand under 'Business Auxiliary Service' and 'Banking and Other Financial Services' on mutual fund-related receipts was rejected as the appellant was not a mutual fund distributor or agent.The appellant was entitled to the Cenvat credit claimed on office equipment and related inputs; the demand for recovery was unsustainable.The extended period of limitation and penalties imposed were not justified and were set aside.The impugned order confirming demands, interest, and penalties was set aside, and the appeal was allowed with consequential relief.