AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2018 (7) TMI 513
X X X X Extracts X X X X
X X X X Extracts X X X X
....issued proposing to demand service tax in respect of Nostro account and SWIFT under reverse charge mechanism, and also to demand service tax on Vostro account as a service provider. After due process of law, the original authority confirmed an amount of Rs. 1,07,78,799/- being the service tax payable on Nostro/Vostro/SWIFT transactions for the period April 2005 to March 2010 along with interest and also imposed penalties. The amount already paid by the appellant was ordered to be appropriated. Aggrieved by such order, the appellant has filed the present appeal. 2. On behalf of the appellant, Ld. Counsel, Shri Raghavan Ramabhadran made oral and written submissions which can be summarized as under:- a) With regard to Nostro transactions, the appellant is liable to pay service tax under reverse charge mechanism. The Commissioner has dropped the demand prior to 18.04.2006. The appellant has paid service tax for the period after 18.04.2006 on these transactions along with interest on 16.02.2010. The appellant is not contesting the demand after 18.04.2006, and is confining the contest on this issue only on penalty imposed. The appellant has discharged service tax w.e.f. 18.04.2006 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....redit as these are input services. That therefore the situation being a revenue neutral one, the demand raised invoking the extended period cannot sustain. One other argument put forward is that in the SCN, the department has alleged that SWIFT would fall under sub clause (viii) and (ix) of Section 65 (12) Banking and other Financial Services, The Commissioner observed that the sub-clause has been wrongly mentioned in SCN but even then proceeded to confirm demand holding that as services would fall under sub-clause (vii) of Section 65 (12) the wrong mention of sub-clause in SCN was only error. The I-d. Counsel also argued that the demand prior to 18.04.2006 cannot sustain for the reason that the demand is made under the reverse charge mechanism B The ratio laid down in the case of Indian National Shipowner's Association Vs. UOI 2009 (13) STR 235 would be applicable and therefore the demand prior to 18.04.2006 cannot sustain. He pleaded that the penalty on this count may be set aside since the issue was a contentious one. d) With regard to demand on Vostro transactions, the Ld. Counsel explained that Vostro account is maintained by various banks for exchange house with ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd category of the said Rules and the condition that has to be satisfied under this category for treating transactions as export is that the recipient must be located outside India. This condition is fulfilled and therefore the services qualify as export of services. As regards the period prior to 01.03.2007, the export of taxable services could be either as per clause 3 (1) of Export of Service Rules, 2005 or as per Rule 3 (2) of the said Rules, In the present case, Banking and other Financial Services falls under Rule 3 (1) (iii) of the said Rules, which has to be treated as an export of service, if the conditions are satisfied. One such condition is that when the service provided is in relation to business or commerce, then the recipients must be located outside India at the time of provision of such services. In the present case, the foreign exchange houses are located outside India and therefore the condition is satisfied. Thus there is no requirement to go to Rule 3 (2) of the said Rules which satisfies the condition that the amount should be received in foreign exchange. That, the Commissioner has erred in denying the benefit for export & services for the mere reason that Vo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....extended period invoked alleging suppression of facts with intention to evade payment of duty is without basis. The Ld. Counsel also submitted that the appellant is a Public Sector Bank and therefore, there cannot be any intention to evade payment of tax. Without prejudice, he pleaded that the penalties may be set aside by invoking Section 80 of the Finance Act, 1994 as it stood during the relevant period. 3. The Ld. AR, Shri R. Subramaniyam, AC, reiterated the findings in the impugned order. His submissions are as follows:- i) With regard to the Nostro accounts, the LD. AR submitted that there is no dispute with regard to the taxability of such transactions as the appellant has started paying service tax from 01.04.2009 onwards and has also paid the service tax for the past period from 18.04.2006 with interest. No sufficient grounds are put forward to set aside penalties. ii) As regards the transactions relating to charges paid to SWIFT, it is clear that the services have been rendered in India and not abroad. The main contention of the appellant is that the transactions with SWIFT will not fall within the classification of Banking and other Financial Services as SWIFT do....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emand Rs.1,07,78,799/- Penalty imposed Rs.1,07,78,799/- (Section 78 + Penalty under Section 76 (Not quantified) 5.2 From the submisstions made it is brought out that appellant is not contesting the demand in respect of Nostro transactions and is confining the challenge in this appeal on Nostro only on the penalty imposed. The appellant has discharged the service tax along with interest on being pointed out by the department. Taking note of this as well as the fact that the issue whether assesse is liable to pay service tax under reverse charge mechanism was contentious for a long time, and was settled by the decision of Hon'ble Apex Court in Indian National Shipowners Association (supra), we hold that the penalty imposed in regard to Nostro transactions is unwarranted and requires to be set aside, which we hereby do. 5.3 With regard to the demand of service tax on SWIFT transactions, one of the grounds put forward by the appellant was that sub-clause of the category of service under Section 65 (12) namely, Banking and other Financial services has been wrongly mentioned in the SCNs In the SCN, sub-clause (viii) and (ix) has been invoked in regard to SWIFT Transact....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nk located outside India; the appellant retains the charges in Indian currency out of the inward remittance received from Bank located outside India. Therefore the condition that receipt in foreign currency in effect satisfied. The very same issue has been clarified by the Board vide Circular Nos 111/5/2009-ST dated 24.0202009. The relevant portion is reproduced as under:- "In terms of Rule 3 (2) (a) of the Export of Services Rules, 20205, a taxable service shall be treated as export of service if "such service is provided from India and used outside India." Instances have come to notice that certain activities, illustrations of which are given below, are denied the benefit of export of services and refund of service tax under Rule 5 of the Cenvat Credit Rules, 2004 (Notification No. 5/2006-CE (NT) dated 14.03.2006) on the ground that these activities do not satisfy the condition 'used outside India' (iv) Foreign financial institution desiring transfer of remittances to India, engaging an Indian organization to dispatch such remittances to the receiver in India. For this, the foreign financial institution pays commission to the Indian organization in foreign exc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Tax is a value added tax, which in turn is a destination based consumption tax in the sense that it is levied on commercial activities, and it is not a charge on the business but a charge on the consumers. There is nothing in Export of Services Rules, 2005 which can be said to be contrary to the principle that a service not consumed in India is not be taxed in India. (iii) What constitutes export of service is to be determined strictly with reference to the provisions of Export of Services Rules, 2005. Not doing so and leaving this question to be determined by individual tax payers or tax collectors for each service, based on their deductive ability would result only in total confusion and chaos. (iv) Money transfer service is being provided by the Western Union from abroad to their clients who approached their offices or the offices of their agents for remitting money from to friends/relatives in India. The service being provided by the agents and sub-agents is delivery of money to the intended beneficiaries of the customers of WU abroad and this service is "business auxiliary service", being provided to Western Union. It is Western Union who is the recipient and consumer o....