TaxTMI 
TaxTMI 
2024 (10) TMI 568
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....the demand of service tax on the two services alleged to have been provided for the normal period of limitation from October 2013 to March 2015 under section 73(1) of the Finance Act 1994 [the Finance Act]. The demand proposed for the extended period of limitation under the proviso to section 73 (1) of the Finance Act has been dropped. The order also imposes penalty under sections 75 and 76 of the Finance Act. Cross Objection No. 50518 of 2019 has been filed by the department in Service Tax Appeal No. 50862 of 2019 filed by SBI. 2. The second set of five appeals have been filed by the department to assail that part of the order passed by the adjudicating authority that drops the demand of service tax for the extended period of limitation from October 2010 to September 2013 under the first proviso to section 73(1) of the Finance Act. The order also drops the penalty imposed under section 78 of the Finance Act. Four Cross objections have been filed by SBI in the four appeals filed by the department. 3. The five banks which merged with SBI on 01.04.2020 shall collectively be called as "Associate Banks". The Associated Banks including SBI shall collectively be referred to as "SBG....
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.....) Total demand confirmed (in Rs.) Interest and penalties confirmed under sections 75 and 76 1. State Bank of Hyderabad 3,57,38,221 5,77,58,266 9,34,96,487 Rs. 35,00,000 2. State Bank of Patiala 4,29,93,542 4,92,94,126 9,22,87,668 Rs. 35,00,000 3. State Bank of Mysore 5,50,05,037 5,18,43,061 10,68,48,098 Rs. 40,00,000 4. State Bank of Bikaner and Jaipur 4,84,55,862 5,05,07,436 9,89,63,298 Rs. 37,00,000 5. State Bank of Travancore 5,06,48,891 5,03,12,779 10,09,61,670 Rs. 5,000 23,28,41,553 25,97,15,668 49,25,57,221 D S. No. Name of Bank Appeals filed by the Banks Appeals filed by the department Cross Objection filed by SBI in appeals filed by the department Total Demand Confirmed in Rs. Penalty in department appeal under sections 1. State Bank of Hyderabad ST/50862/2019 ST/54179/2018 43,65,37,379 77 and 78 2. State Bank of Patiala ST/50860/2019 ST/54175/2018 ST/CROSS/50317/2019 20,59,78,946 77 and 78 3. State Bank of Mysore ST/50859/2019 ST/54176/2018 ST/CROSS/....
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....13. The penalties imposed under sections 77 and 78 of the Finance Act were also dropped. 9. The adjudicating authority has confirmed the demand for the following reasons: (i) The Associate Banks did not discharge service tax on the amount received from SBI for the services provided to other SBG Banks. There is no written agreement between SBI and the Associate Banks that provides that SBI is required to discharge service tax liability on behalf of the Associate Banks; and (ii) The free ATM services provided by the constituents of the SBG Banks to each other are chargeable to service tax on notional consideration. 10. The findings recorded by the adjudicating authority on the two issues are as follows: First issue "A 10.1. In this context, I find from the facts that the Interchange fee transferred by SBI to SBH is only as a result of providing of services by SBH on its ATMs and not as a result of pooling of their assets in the common network run and managed by SBI. SBI as per the facts of the case are only acting as a settlement agency for settlement of amounts due from or earned by the SBG banks (including their own transactions). The question re....
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....enses may be contributed by the Noticee for maintenance purposes, but that in my opinion would not be the only major expense looking into the total expenses being incurred by the Noticee for providing the ATM services. Further, I find that in the present case the association between Noticee [and other Associate Banks] with SBI is not on revenue sharing basis [total common revenue minus common cost] but is limited to some common costs related to SBI Switch centre [which may be one time investment made @ 10% of the total cost plus some running expenses]. Therefore, the venture cannot be termed as a joint venture between SBI and the associates. xxxxxxxxx B 1.6. Now considering the above provisions relating to ATM services, there is no doubt that debit cards are being issued by each of the five Associate Banks and by SBI separately and ATMs machines are also deployed by each of the Associate Bank and by the SBI separately. Thus in case the SBI customer goes to the SBH's ATM and avails the ATM services, then in that case the SBI is the issuing bank and SBH is the acquirer bank for ATM or Debit card services provided by the SBH. The position is similar in the vice-versa....
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....tion Infrastructure are necessary. Each ATM, ATM Card and ATM Switch has a unique identity, which is essential for identification and settlement of ATM transactions; (v) SBG Banks had set up an ATM Switch (SBG Switch) on co-ownership basis. Share of SBI in the co-owned SBG Switch was 50% and share of the five Associate Banks was 10% each. (vi) SBG Switch was jointly owned. Each of the constituent SBG Banks had capitalised the cost of the SBG Switch in their respective books of accounts. All the capital expenditure and operating expenses relating to SBG Switch were shared amongst each of the SBG Banks in proportion of their ownership interest in the SBG Switch; (vii) SBG Switch processes all ATM transactions of SBG Banks. Before centralisation of service tax registration with effect from 01.10.2010, SBI had registered the SBG Switch as a separate assessee in its own name, as the SBI had the largest share in the SBG Switch; and (viii) SBI had also been authorised by the Reserve Bank of India to act as a settlement agency under the Payments and Settlement Systems Act, 2007 for settlement of ATM transactions of SBG Banks; 13. It is also important ....
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.... when the SBG Switch was initially set up and thereafter considering that none of the party ever disputed the arrangement and Associate Banks were subsidiaries of SBI, the same was not formalized; (vi) For service tax purposes, SBG Switch used to aggregate entire service tax liability on "On-us transactions" and service tax paid on "Off-us transactions" and, thereafter, the balance available used to be paid in cash to the Government; (vii) Since the SBG Switch was separately registered with service tax authorities and service tax was claimed to have been paid by SBI as their agent, the Associate Banks claim that they were under a bona-fide belief that the same was not required to be registered again in their own name in proportion of their share. On the same ground, the Associate Banks also claim that they were under a bona-fide belief that since SBI had been discharging service tax liability as their agent, the question of again paying service tax did not arise; (viii) This arrangement was followed since the inception of the SBG Switch i.e. for more than 10 years prior to show cause notice period. It is stated that the audit wing of the service tax depar....
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....person liable to pay tax, and hence when tax has been discharged by the agent, it cannot again be demanded from the principal; (iv) The adjudicating authority has held that the idea of referring SBI as an agent occurred to the Associate Banks w.e.f. 25.11.2019 after the inquiry was initiated and is, therefore, an afterthought. There is no allegation in the show cause notice that referring to SBI as an agent of Associate Banks was an afterthought. There was no material before the adjudicating authority to support the finding that referring to SBI as an agent was an afterthought; (v) The Associate Banks had submitted various documents including a chartered accountant certificate certifying that SBI had paid service tax on the entire revenue of SBG Switch, including on the services provided by Associate Banks to non SBG Banks, but the adjudicating authority has held that none of the documents submitted by the Associate Banks justify the payment of service tax by SBI acting as their agent; (vi) The show cause notice proposed demand of service tax on interchange fee received on the ground that interchange fee is commission from SBI for deployment of ATMs owned....
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....and penalty cannot be demanded; (vi) The adjudicating authority committed no illegality in dropping the demand for the extended period of limitation; and (vii) In the absence of suppression, willful misstatement, or fraud with intent to evade payment of service tax, penalty under section 78 of the Finance Act could not have been imposed. 15. Shri Ajay Jain, learned special counsel appearing for the department, however, supported the impugned orders and made the following submissions: (i) The contention of the appellant that the adjudicating authority has travelled beyond the scope of the show cause notices is not correct as the order has been passed by the adjudicating authority with reference to submissions made by the Associate Banks at the time of investigation regarding the practice being followed for payment of tax by SBI; (ii) The contention of SBI that show cause notice is based on presumptions is not correct; (iii) The Associate Banks have claimed that SBI acted as their agents as there was an implied agreement. There is no written agreement and even the essential characteristics of a principal-agent relationship have not been....
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....refore, it was decided that SBG Banks will not charge any fees from the customers for the use of the ATMs of the other Banks. It was, therefore, necessary for the SBG Banks to set up ATM Switch on co-ownership basis. SBI had a 50% share, while each of the five Associate Banks had a share of 10% each. The banks had contended that though the SBG Switch was jointly owned, but all the capital expenditure and operating expenses relating to SBG Switch were shared amongst each of the SBG Banks in proportion of the ownership interest in the SBG Switch. As the SBI had the largest share, it registered the SBG Switch in its own name prior to centralized registration w.e.f. 01.10.2010. SBI was also a settlement agency authorized by the Reserve Bank of India. 19. In case of ATM transactions involving two Banks where the ATM Card issuing bank is different from the bank on whose ATM the card has been used, NPCI would settle interchange fees with SBI. In turn, SBI would settle the same with the Associate Banks without any mark-up. Conversely, if a customer of an Associate Bank transacted on the ATM of a Bank other than that of SBG Banks ATM, the Associate Banks would have to pay the required to....
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....lied when it is to be inferred from the circumstances of the case, and things spoken or written. What has been submitted by the appellant is that even though there is no written contract, but still an implied authority existed with the SBI to discharge the service tax liability on behalf of the Associate Banks. 21. It needs to be noted that neither the SBI nor the Associate Banks have raised any dispute and indeed the conduct of the parties does establish that there was an implied authority with SBI to discharge service tax liability of the Associate Banks. It is only when an enquiry was conducted by the department that the Associate Banks started discharging service tax on such interchange fees. Prior to that, SBI was discharging the service tax liability of the Associate Banks on the interchange fees. It also needs to be noted that even after the Associate Banks started separately paying service tax, the service tax liability of the SBG Banks remained the same. This demonstrates that the earlier arrangement that existed between the Associate Banks and SBI was merely for smooth settlement and did not have any service tax impact. 22. Thus, discharge of service tax liability o....
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....ction, reference can be made to the judgment of the Supreme Court in Commissioner of GST and Central Excise vs. M/s. City Bank N. A. [Civil Appeal No(s). 8228 of 2019 with Civil Appeal No. 89 of 2021 decided on 09.12.2021]. The Supreme Court held that when service tax has been paid by the acquiring bank on interchange fee, the issuing bank is not required to pay service tax again on the share of interchange fee received from the acquiring bank. It needs to be noted that though both the Hon'ble Judges of the Supreme Court had divergent views on the applicability of service tax on share of interchange fee received by the City Bank, but both the Hon'ble Judges concurred that if the acquirer bank had discharged service tax on the entire amount, including share of City Bank, the demand should not be raised again. The issue involved in the present case relates to ATM transaction, while the issue involved before the Supreme Court in City Bank relates to Credit Card transactions, though the mode of settlement of ATM as well as Credit Card transaction is similar. 27. It further needs to be noted that while the show cause notice proposed demand of service tax on interchange fees received ....
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....o refer to the dictionary meanings, which are as follows: Reciprocal S. No. Dictionary Meaning 1. Cambridge Dictionary Reciprocal action or arrangement involves two people or groups of people who behave in the same way or agree to help each other and give each other advantages 2. Collins A reciprocal action or agreement involves two people or groups who do the same thing to each other or agree to help each another in a similar way 3. Oxford Learner's Involving two people or groups who agree to help each other or behave in the same way to each other 4. Longman dictionary A reciprocal arrangement or relationship is one in which two people or groups do or give the same things to each other 5 Britannica Dictionary Used to describe a relationship in which two people or groups agree to do something similar for each other, to allow each other to have the same rights, etc. Barter S. No. Dictionary Meaning 1. Merriam Webster : to trade by exchanging one commodity for another : to trade goods or services in exchange for other goods or services 2. Cambridge Dictionary : to exchange goods for oth....
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....o sub-section (1) of section 67 defines "consideration" to include any amount that is payable for the taxable services provided or to be provided, or any reimbursable expenditure, or any amount retained by the lottery distributor or selling agent. It is clear from the aforesaid definition of "consideration" that only an amount that is payable for the taxable service will be considered as "consideration". 37. A Larger Bench of the Tribunal in Bhayana Builders (P) Ltd. vs Commissioner of Service Tax [2013 (32) S.T.R. 49 (Tri.-LB)] observed that "implicit in the legal architecture is the concept that any consideration whether monetary or otherwise, should have flown or should flow from the service recipient to the service provider and should accrue to the benefit of the latter." In the said decision, the Larger Bench made reference to the concept of "consideration", as was expounded in the decision pertaining to Australian GST Rules, wherein a categorical distinction was made between "conditions" to a contract and "consideration". It has been prescribed under the said GST Rules that certain "conditions" contained in the contract cannot be seen in the light of "consideration" ....
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....occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing "such" taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such "taxable service". That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasised that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider "for such service" and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25. This position did not change even in the amended Section 67....
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....ty under section 66B of Finance Act, 1994 will not arise. It is clear that there is no consideration insofar as 'corporate guarantee' issued by respondent on behalf of their subsidiary companies is concerned. 9. The reliance placed by Learned Authorised Representative on the 'non-monetary benefits' which may, if at all, be of relevance for determination of assessable value under section 67 of Finance Act, 1994 does not extend to ascertainment of 'service' as defined in section 65B(44) of Finance Act, 1994. 'Consideration' is the recompense for the 'contractual' undertaking that authorizes levy while 'assessable value' is a determination for computing the measure of the levy and the latter must follow the former." 37. The Civil Appeal filed by the department against the aforesaid order of the Tribunal in Edelweiss Financial Services was dismissed by the Supreme Court and the decision is reported as 2023 (4) TMI 170 - SC Order [Commissioner of CGST and Central Excise vs. M/s. Edelweiss Financial Services Ltd.]. The relevant paragraph of the judgment of the Supreme Court is reproduced below: "7. The above would sugge....
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.... number AAACS8577KSTYG1 and had been paying service tax for ATM services provided by SBG members. The said arrangement continued till 30.09.2010 till the said services were shifted to SBI from October 2010. C.6. I find that SBI Switch centre was a separate assessee and had been filing the Service Tax returns (ST-3 returns). I find that the Noticee has enclosed sample copies of ST-3 returns filed by SBI Switch Centre for the period upto March 2010. I further find that the Noticee have also enclosed some sample copies of ST-3 Returns filed by SBI with the Department starting with the period October 2010 to March 2011 and October 2014 to March 2015. l also find that there is no dispute towards the fact that ST-3 returns have also been regularly filed by SBH with the Department. I further find that records of the SBI Switch centre have been regularly audited by the Department as can be seen from the Audit Report No. 39/10-11 dated 06.01.2011 covering the period from 2006-07 to 2008-09. Similarly the Service Tax and Financial records of the Noticee were audited by the Department as per the Audit report submitted by the Noticee vide Annexure-7 covering the period from April 2011....
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.... (e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words "eighteen months", the words "five years" had been substituted." 41. It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within eighteen months from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay amount specified in the notice. 42. The 'relevant date' has been defined in section 73 (6) of the Finance Act as follows; "73(6) For the purpose of this section, "relevant date" means,- (i) In the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short paid- (a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the p....
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....t is explained in various dictionaries unless of court the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression." (emphasis supplied) 45. This decision was referred to by the Supreme Court in Anand Nishikawa Company Ltd. vs. Commissioner of Central Excise [2005 (188) E.L.T. 149 (SC)] and the observations are as follows: "26 ...........This Court in the case of Pushpam Pharmaceutical Company v. Collector of Central Excise, Bombay, while dealing with the meaning of the expression "suppression of facts" in proviso to Section 11A of the Act held that the term must be co....
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....yment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11-A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct." (emphasis supplied) 48. The Delhi High Court in Bharat Hotels Limited vs. Commissioner of Central Excise (Adjudication) [2018 (12) GSTL 368 (Del.)] also examined at length the issue relating to the extended period of limitation under the proviso to section 73 (1) of the Finance Act and held as follows; "27. Therefore, it is evident that failure to pay tax is not a justification for imposition of penalty. Also, the word "suppression" in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso, i.e. "fraud, collusion, wilful misstatement". As explained in Uniworth (supra), "mi....
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....ding non-payment of service tax on the two ATM transactions referred to in the show cause notice. There is, therefore, no suppression of material facts from the department, much less with an intent to evade payment of service tax. Post the enquiry by the DGGI in 2013, the Associate Banks started separately discharging service tax liability and it is stated that even with the changed methodology the service tax liability of SBG Banks remained the same. Thus, the earlier arrangement did not have any service tax impact. There is, therefore, no reason to doubt the contention of the Associate Banks that they were under a bonafide belief that the liability to pay service tax was being discharged by SBI as their agent. 52. In this connection, it would be pertinent to refer to the judgment of the Supreme Court in Commissioner of C. Ex. & Customs vs. Reliance Industries Ltd [2023 (385) E.L.T. 481 (S.C.)]. The Supreme Court held that if an assessee bonafide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide. If a dispute relates to interpretation of lega....