TaxTMI 
TaxTMI 
2011 (7) TMI 312
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....ing from 18.4.06 to the date when the entire amount of Service Tax was paid was imposed under Section 76 ibid and penalty under sub-clause (a) and (b) above in totality shall not exceed the amount of service tax, i.e., Rs.2,67,56,142/-; (iii) Penalty of Rs.1000.00 only was imposed under Section 77 of Finance Act, 1994 on M/s ABN AMRO Bank, Noida; and (iv) Penalty of Rs.4,00,00,000.00 (Rs. four crores only) was imposed under Section 78 of Finance Act, 1994. 2. Basing on the result of an investigation, Show Cause Notice (SCN) dated 3.10.2007 (Ref : available at page 45 of the appeal folder) was issued to the appellant making allegation of evasion of service tax to the extent adjudicated as aforesaid in respect of credit card services provided by the Appellant. Ld. adjudicating authority examining the charges in the SCN, reply of the appellant thereto filed on 30th December, 2008 (available at page 88 of the appeal folder) and taking into consideration the law in force at the relevant point of time, i.e. for the period 1.6.2002 to 30th April, 2006, held that the nature of service provided by the appellants was credit card services within the meaning of the term....
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....nk : A financial institution that provides a customer with a credit card or other payment instrument. Examples include Citibank, ICICI Bank etc.. During a purchase, the Customer Issuing Bank verifies that the payment information submitted to the merchant is valid and that the customer has the funds or credit limit to make the proposal purchase ; (c) In case of Credit Card, bank maintains account of its customers with a specific credit limit ; (d) The Card is an account access device issued by Bank bearing the name or trade mark, service mark or logo of that particular bank ; (e) The Card Number is an individual/person whose name is embossed on front of the card ; (f) The charges are the purchases/services made/availed by the card member with the card ; (g) Establishment is an individual or organization who signs the application and would mean and includes all officers/locations from where the same are likely to submit charges ; (h) The Discount is the fees for accepting charges ; (i) ME/SE are appointed as per certain terms and conditions, which are stipulated and dictated by the Acquiring bank ; (j) The Issuing Bank r....
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....hant fees/service charges/discount/commission which is known as Interchange fees. (iv) The portion of the ME/SE discount charged by the acquiring bank from the ME/SE is passed on to the issuing bank through mater card as part of master card daily settlement process. Thus the acquiring bank as well as the issuing bank is distributing the ME/SE discount through master card in a pre-agreed ratio as prescribed under Master Card guidelines. 4.1 In the course of investigation, statement of Shri S. Venkatesan, Vice President and head of card operation of the Appellant bank was recorded on different dates, i.e., on 29.11.2005, 7.3.07 and on 16.4.07 to ascertain method of working of the appellant bank in respect of credit card services provided by it to its credit card holders and that was summarized in paragraphs 7, 8, 9 of the adjudication order. In his statement dated 29.11.2005, he stated that the bank issues credit/ Master Card to individuals charging fees and it was not on acting as an acquiring bank at the relevant point of time. It was entitled to get 1.10% of the discount earned by Acquiring Bank from settlement of Account with Merchant Establishment . Similarly, 1.....
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....earned Authorised Representative appearing on behalf of the appellant before Tribunal argued that the adjudication related to the period 1.6.2002 to 30th April, 2006 and that has taxed interchange fees received by the appellant under the Act when meaning of credit card service was defined by section 65(33a) of the Act, w.e.f. 01.05.2006 by Finance Act, 2006. He explained the manner how such fees arise stating that credit card is issued by a banker to its customer to enable him to make credit purchase of goods or avail service on credit from a Merchant Establishment. The Merchant Establishment who sells the goods or provides service on credit to the credit card holder either seeks payment in relation to that transaction from the card issuing bank or through an intermediary called Acquiring Bank . If payment is made by card issuing bank directly, there arises no intermediary. If payment is claimed through an intermediary, i.e., acquiring bank under MasterCard arrangement policy that intermediary honours the claim of Merchant Establishment . 6.2 According to MasterCard policy arrangement, claim made by Merchant Establishment in respect of credit card purchase or availment of c....
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.....f.1.5.2006. 6.4. Learned Authorized Representative further submitted that the Central Board of Excise & Customs on introduction of credit card service to taxation by the Finance Act, 2001 w.e.f. 16.7.2001 incorporating Section 75(72)(zm) read with Section 65 (10) and thereafter renumbered as Section 65 (12) of the Act explained the levy in terms of Para 2.2 of the communication issued under F.No.B.11/1/2001-TRU dated 9th July, 2001. At that time there was no definition of the term credit card . It was explained by Board that any amount paid by a customer to credit card service provider prior to 16.07.2001 was not taxable. The appellant had not provided credit card service to the customer. But as an intermediary acquiring bank , the appellant was getting its share on the difference settled in respect of credit card transaction which was not liable to tax during the impugned period. 6.5. According to Ld. AR, the service provided by an acquiring bank came to the ambit of sub-section (33a) of Section 65 of the Act by the Finance Act, 2006 w.e.f. 1.5.2006 and credit card service was brought to tax by introducing Clause (zzzw) to Section 65 (105) of the Act w.e.f. 1.5.20....
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....t. Ltd. 2011(264)ELT193(Cal.) and Universal Packaging vs. CCE 2011(264)ELT147(Tribunal). So also for no suppression of facts nor any motive to cause loss of revenue, the appellant was not liable to penalty at all and the impugned order is liable to be set aside since appellant was registered with Service Tax Authority w.e.f. 18.07.2002 and there exists reasonable cause under section 80 of the Act for waiver of penalty. 6.10. It was alternatively argued that if at tax is leviable, tax-cum-price benefit be allowed to the appellant applying the tax rate as applicable at the relevant point of time. ARGUMENT ON BEHALF OF REVENUE 7.1. Per contra, Revenue argued that Finance Act, 2001 in terms of Section 65(72)(zm) prescribed that service provided to a customer by a banking company or a financial institution including a non-banking financial company in relation to banking and other financial services shall be taxable under the Act. The term banking and other financial services was defined by Section 65 (10) of the said Act and thereafter renumbered as Section 65 (12) at the relevant time bringing a following cluster of services including credit card services to the....
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....es by Finance Act, 2001 and later brought under a different definition clause by Finance Act, 2006 did not change incidence of tax. Allocation of credit card service to a different definition clause by Finance Act, 2006 did not immune the Appellant from levy of service tax when incidence of tax occurred prior to enactment of Finance Act, 2006. Plea of the appellant that such service was not taxable from 2001 by Finance Act, 2001 in terms of taxing entry u/s 65(72)(zm) but only taxed by taxing entry u/s 65(105)(zzzw) of the Act is inconceivable. There was full fledged charging section all along. 7.4. It was further submission of Revenue that with the growing need of economy, when facility of debit card , charge card and other payment card services were introduced by banks while credit card service remained to continue to be in the statute book under charging provision of law from 2001, for convenience of tax administration, legislature having wide latitude and competency, provided a revised comprehensive definition in sub-clause (33a) of section 65 of the Act to bring all such service under the charging Section, i.e., 65 section (105)(zzzw) by Finance Act, 2006. Credit card ....
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....ax on such service from 2001, present appellant cannot be an exception. While Finance Act, 2001 by definition of the term banking and financial services kept credit card service within its fold for levy of tax, the Finance Act, 2006 merely segregated that service to appear under clause (33a) of section 65 more conveniently. Therefore, a definition clause in law cannot be read as a charging provision. 7.7. It was also argued on behalf of Revenue that when the credit card service is provided by a bank and the account of the Merchant Establishment is settled directly by the card issuing bank or through an acquiring bank , that does not make any difference to law since ultimate service was provided to card holder customer in relation to credit card service. The customer who is a credit card holder is served by card issuing bank and in whatever manner such bank settles the dues of Merchant Establishment either directly or indirectly through acquiring bank, no way affects the levy. The acquiring bank is obliged to cater to the need of card issuing bank as a party to MasterCard policy to serve the ultimate card holder customer of the later in relation to credit card service. In bo....
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....e appellant from liability to tax. Appellant s contention that it had not provided taxable service to a customer is devoid of merit. 7.10. It was also contended by Ld. DR that acquiring bank provide EDC machine with inbuilt software to Merchant Establishment to discharge contractual obligation on behalf of card issuing bank to the card holder customers . When the consideration received by the appellants is attributable towards providing credit service to its customers and such consideration is in relation to the banking and financial services, it cannot be pleaded that the appellant had not served card holder customer. 7.11. Ld. DR relying upon para 25.6 of the adjudication order explained that the statement recorded from Vice President of the appellant company demonstrated that the appellant served its card holder customers and is liable to tax for the credit card services provided to the later. The appellant well explained in course of investigation about the nature of consideration received for the credit card service provided by it and that was lawfully taxed in adjudication. 7.12. Ld. DR inviting attention to para 25.4 to 25.16 of adjudication order exp....
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.... to penalty and interest apart from tax levy. REPLY OF APPELANT AGAINST REVENUE S SUBMISSIONS 8. Replying to the contention of the Revenue, Ld. Authorised Representative appearing on behalf of the appellant submitted that the card holder not being a customer for the acquiring bank was not liable to adjudication. He emphasized that the circulars/ instructions issued by CBEC are binding on the department. Scope of taxable service and value of such services calls for examination while determining taxability of banking and other financial services and if at all there arises liability under law, gross value received for providing the service shall get reduced by the service tax since it is normally understood that gross value of the receipt is inclusive of taxes and the appellant shall be entitled to such benefit. FINDINGS ANDCONCLUSION OF TRIBUNAL LAW RELATING TO CREDIT CARD SERVICE ENACTED BY FINANCT ACT, 2001 AND FINANCE ACT, 2006 9. Heard both sides and perused the record and have gone through various materials to which our attention was drawn. Credit card facilitates, purchase of goods and availment of service on credit Such service provided ....
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....ancial services under sub-clause (ii) of clause (10) of Section 65. As soon as law was enacted in 2001, Government explained by a communication vide No.B.11/1/2001-TRU, Govt. of India , dated 09.07.2001 that the service tax levied on different services by section 130 of Finance Act, 2001 was in respect of transactions made on or after 16.07.01. In terms of para 2.2 of the said communication, the Govt. explained its intention to tax as under :- 2.2 Credit card services 2.2.1 This is a service where the customer is provided with credit facility for purchase of goods and services in shops, restaurants, hotels, railway bookings, petrol pumps, utility bill payments etc. Cash advances are also permitted upto specified limits in most of the cases. This service is provided by nationalized banks, multi-national banks and private banks. 2.2.2 For rendering the service, the service provider collects joining fee, additional card fee, annual fee, replacement card fee, cash advance fee, charge slip/ statement retrieval fee, surcharge/service charges on railway fare, fuel charges, and utility bill payments, charges on over limit accounts and late payment fee, interest on delayed ....
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....hancement of credit limit, payment updation and statement generation; (iii) by any person, including an issuing bank and an acquiring bank, to any other person in relation to settlement of any amount transacted through such card. Explanation For the purposes of this sub-clause, acquiring bank means any banking company, financial institution including non-banking financial company or any other person, who makes the payment to any person who accepts such card. 14. The inclusive definition given by clause (33a) read with section 65(105)(zzzw) of the Act brought all range of services provided by different types of cards in any manner in relation to such cards to the tax net. Legislature having wide latitude in the matter of taxation brought all cards under one group . Prior to enactment of Finance Act, 2006, credit card services provided were taxable services under Section 65 (72) of the Act till 30.4.2006 and that continued to be taxed by Finance Act, 2006. It cannot be said that charging provision of section 65 (105) (zzzw) of the Act brought credit card service into tax for the first time when charging provision of Section 65 (72) was existing in statute book....
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....ovided in relation to such credit cards shall be conveniently dealt by the tax administration following cannon of convenience which is one of the considerations of classification rule. Therefore at no point of time, credit card service cannot be presumed to be excluded from levy before enactment of Finance Act, 2006. It may be stated that what was expressively clear soon after enactment of Finance Act, 2001 bringing section 65(72)(zm) to statute book read with section 65(10) of the Act was to tax credit card service . Therefore, express statutory grant took within its fold all incidental and ancillary service using the term in relation to credit card through the charging provision of section 65(72)(zm) and subsequently section 65(105)(zzw) of the Act to make the grant effective. Therefore, contentions of Revenue has immense force. ADJUDICATION JUSTIFIED 17.1 With aforesaid legislative background, Revenue authorities issued Show Cause Notice to the appellant on 03.10.07 to test result of the investigation done by DGCEI on the allegation that the appellant being engaged in credit card business was not paying service tax on the consideration received for providing such....
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....as aforesaid and explained the mode how the appellant made aforesaid earning. It was specifically explained that the money received from the card holder goes through the Master Card to the acquiring bank and later the acquiring bank passes share of issuing bank to the later as per Master Card policy. Above evidence when not controverted well establish that credit card service provided by appellant as card issuing bank was a taxable u/s 65(72)(zw) since gross value of the extent adjudicated was received by it from acquiring bank and entire such fact was within the conscious knowledge of Appellant. 17.4. Interchange receipt was scrutinized by Revenue and show cause notice was issued making clear in para 1 of the show cause notice that the appellant bank was engaged in providing credit card service and services in relation thereto was provided for the period from 01.06.02 to 31.04.06 and consideration was received for providing such services. Although, the receipts were routed through Master Card by the acquiring bank in the form of interchange fee, that became measure of taxation for levy of service tax in terms of provisions contained in section 65(72)(zm) read with section ....
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....d in good drafting. The word pertain is synonymous with the word relate . The term relate is also defined as meaning to bring into association or connection with. The expression in relation to (so also pertaining to ), is a very broad expression which presupposes another subject matter. These are words of comprehensiveness which might have both a direct significance as well as an indirect significance depending on the context. [Emphasis supplied]. 17.8. In Renusagar Power Co. Ltd. v. General Electric Company and Another (1984) 4 SCC 679, Hon ble Court observed as under : Expressions such as arising out of or in respect of or in connection with or in relation to or in consequence of or concerning or relating to the contract are of the widest amplitude and content and include even questions as to the existence validity and effect (scope) of the arbitration agreement. [Emphasis supplied] 17.9. It is well settled that in matters of taxation laws, the court permits greater latitude to pick and chose objects and rates for taxation and has a wide discretion with regard there to. Reference may be made to the decision of Mafatlal Industries Ltd. and Others v. Union o....
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....tructions. There was proper application of law made by the learned Adjudicating Authority to come to a rational conclusion. Learned A.R. further relied on the decision in Web Impression (India) Ltd. : 2011 (264) ELT 193 (Cal.) and Universal packaging 2011 (264) ELT 147 (Tri.) to argue that adjudication was time barred. It appears that the citations relied upon by Appellant were not profitable to it for the reason that there was an established suppression of the fact made by the appellant. Although the appellant was registered with Service Tax Authorities on 18.07.2002 in respect of Banking and Other Financial Services , there was no disclosure of any exemption claimed for the impugned service provided in its returns required to be filed under law nor any explanation was furnished to the Authority before investigation to exhibit bonafides. Even two orders passed by two different Commissionerate relied upon by the appellant to plead that those authorities have exempted Credit Card services from levy during the impugned period is of no avail to the appellant because of proper law applied to the present facts and circumstances of the case to hold that the Appellant provided taxable ser....