TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 1114
X X X X Extracts X X X X
X X X X Extracts X X X X
....d further penalty of Rs. 1000/- under Section 77 of the Act holding that the cheque return charges, minimum balance violation charges and non-maintenance of Quarterly Average Balance (QAB) received by the appellant were taxable being the consideration received for providing banking service to its Customers (account holders). 2. To impose the tax and penalty as above, learned adjudicating authority in his finding recorded as under:- "The issue to be decided is whether service tax is payable on (i) Cheque return charges; (ii) Minimum balance violation charges and (iii) Charges for non-maintenance of QAB by the service provider providing banking and financial services. The notice claims that there is no service element involved in the said transactions and as such no service tax is leviable on the same. Cheque return charges are charged to customers when the cheques issued by the customers fail to get honoured. The bank provides cheque operating service for their customers subject to certain conditions one of which is to maintain enough balance in their account for the cheques tendered in their name. The cheque operation definitely involves operation of bank accounts and is extended....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is 10.9.2004 to 31.3.2007 Service tax has been levied misinterpreting the law. Aforesaid three receipts are in the nature of penalty collected from the defaulter. Customers whose cheques were returned for whatsoever reason may be, minimum balance not maintained causing financial burden on the appellant bank, as well as not maintaining Quarterly Average Balance (QAB) which was required to be maintained by a Customers with the appellant bank, and did not form part of the gross value of taxable service provided by the appellant bank to its Customers. Appellant it is a banking company as defined by section 65(11) of the Act, 1994 and had provided "banking and other financial services" during the impugned period. The term "banking and financial services" is defined under section 65(12)(ix) of the Act which reads as under: Section 65(12)(ix): "other financial services namely lending; issue of pay order; demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, over draft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts".....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e into its fold the penal receipts of the aforesaid nature for taxation. Penalties are not intended to be taxed since that does form part of gross receipts and there is no provision of service in consideration of such receipt. It is commonly known that any breach of contract is compensated by penalty. Thus the three receipts were realized as penalty for the breach of the contract made by the account holders. Accordingly, that is neither liable to service tax nor any penalty is imposable. 4. Government through Circular F.No.332/29/2009-TRU dated 26.4.2010 has clarified that penal rent for retaining the container beyond pre-determined period being "detention charge" is not liable to service tax. It was further clarified by Circular No.96/7/2007-ST dated 23.8.2007 that "surcharge" collected on the delayed payment of telephone bills is not a consideration taxable under the Finance Act, 1994. Therefore, the above three receipts of the appellant-bank do not form part of the gross value of receipt not being received in the course of provision of taxable service. The word "namely" used at the beginning of section 65(12)(a) and again in 65(12)(a)(ix) clearly mean that only the nature of re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e that detention charges was collectible as penal rent. That has no relevance to the present context of taxation of the receipts of aforesaid nature made by the bank in the course of provision of service of "operation of bank accounts" by its customers which is inextricably connected with the provision of banking service and is also an integral part thereof. 9. The scheme of taxing entry under Section 65(105)(zm) of the Act, envisages taxation of any services provided by a bank and all such services provided in relation to provision of banking services are sought to be taxed by that entry. Accordingly, the scope of services provided in relation to operation of the bank account falls within its ambit. All the three charges stated above were received by the appellant "in relation to" provision of banking service and most particularly operation of bank accounts opened with it by its customers. The receipts made by appellant from its customers for acting for them on their instructions or terms agreed between them are valuable consideration received by the appellant while providing service of maintaining their accounts with it. That is not the penalty realized by the bank from its cust....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 11. As stated hereinbefore, the appellant bank being a service provider sought to recover cost of services provided to its customers for presenting their cheque for realization or for honouring their cheques presented by drawees. Such cost recovered does not assume the character of penalty since that was sought to be recovered in consonance with the terms agreed between the parties. Similarly, the charges collected by it, in respect of accounts falling below the minimum balance required to be maintained in respect of accounts is a recovery of cost of maintaining such accounts. That cannot also be characterized as penalty. The cost recovered by the appellant bank from the account holders whose quarterly average balance fall, below the agreed amount is nothing but a consideration received by it to provide the service of banking to the customers. Naming of such cost recovery as violation charges does not alter the object of taxation of the receipt made by it in relation to the provision of service of operation of accounts opened by its customers with it. 12. The appellant emphasized that the term "namely" being used at two place of section 65(12) of the Act, that does not broaden t....