AI Drafter 
TaxTMI 
TaxTMI 
2025 (11) TMI 6
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....h foreign banks to help their customers dealing in Export and Import business and paying/collecting bank charges for such services and utilized the services of SWIFT, Belgium for reliably exchanging financial information relating to banking transactions. The said services appeared to be taxable under "Banking and other Financial Services" under Section 65(12) of the Act. However, they were not paying service tax on Vostro and SWIFT transactions for the period from Apr'2012 to Mar'2013. Hence, proceedings were initiated by issue of show cause notice dated 20.08.2013, After due process of Law, the Respondent. confirmed the demand of Rs.25,18,820/- on the Vostro Transactions as service provider and Rs.11,39,373/- on the SWIFT transactions as service receiver along with interest and imposed penalty under Section 76 of the Act vide Order-in-Original No. LTUC/017/2014-ADC dated 14.02.2014. In appeal, the Commissioner (Appeals) upheld the same. Hence, this appeal is filed before this Forum. 3. On behalf of the appellant, the Ld. Counsels Ms. Swetha Vasudevan & Mr. Deepak Krishnan, Advocates appeared for the Appellant and the Ld. Authorized Departmental Representative Shri Sanja....
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....thly traffic charges to SWIFT which depends on the number of outgoing messages and the type of message sent by them during a particular month. 8.2 We find that the appellant is a nationalized bank and is engaged inter alia in providing Banking or Other Financial Services. As explained by the Ld. Counsel, they have been maintaining Vostro account as well as using SWIFT for the facility to exchange messages. The period involved is from April 2012 to March 2013. 8.3 Before we delve into the issues, we have to understand what the terms used are about. We look into the internet definition of Vostro Accounts and SWIFT Transactions which are as follows: - Vostro account * A bank account that one bank holds on behalf of another bank. * In the context of the RBI, a foreign bank holds an account in INR with an Indian bank. This is called a Special Rupee Vostro Account (SRVA) and is used to settle trade in rupees. * Facilitates international trade by allowing payments for exports to India to be credited and payments for imports from India to be made in a common currency (INR). SWIFT * A secure messaging network that banks use to comm....
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....transactions as they qualify to be export of Service. 8.5.3 However, the impugned order has held that service tax is payable on the remittance service since the same does not qualify as export of service as (a) The delivery of service is maintenance of Vostro account and the purpose of Vostro account is to extend the remittance services for persons residing in India and the transaction cost per transaction is received in India, the service can be termed as services provided in India and for the persons residing in India. (b) Further only funding of the account is through foreign currency but the same is converted to rupee currency. (c) Further the charges for each transaction is being debited in Indian currency 8.5.4 Hence the Appellant is liable to pay service tax on the said service which is undisputedly covered under Banking & Other Financial Services. 8.5.6 For the Period after 01.07.2012 (Negative Service Tax Regime) In the present case the service receivers are the exchange houses which are situated abroad. They do not have any registration in India for the purpose of service tax. Hence the "location of such service receiver' will be....
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....transaction: The domestic exporter sells goods or services to the foreign importer and issues an invoice in the domestic currency. iii. Payment initiation: The foreign importer instructs their bank to make the payment. iv. Domestic conversion and transfer: The foreign bank uses its Vostro account at the domestic bank to transfer the invoiced amount to the exporter's account. At this point, the currency conversion (from the foreign currency to the domestic currency) has already happened, and the payment is settled entirely within the domestic banking system. v. Payment completion: The domestic bank, which holds the Vostro account, debits the foreign bank's balance and credits the amount to the exporter's account. The exporter receives the payment quickly and in their home currency, with minimal foreign exchange friction. 8.6.5 We further find that the consideration for such services rendered by the Appellant was received through the Vostro accounts which in turn are funded by convertible foreign currency. The foreign currency thus received in Vostro accounts has necessarily to be converted into Indian currency for payment to the ultimate ben....
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....ence" in case of a body corporate means the place where it is incorporated or otherwise legally constituted. Explanation 2: - For the purpose of clause (i), in the case of telecommunication service, the usual place of residence shall be the billing address. 8.6.9 We find that in the present case; the service receivers are the exchange houses which are situated abroad. They do not have any registration in India for the purpose of service tax. Hence the 'location of such service receiver' will be the location of its business establishment. The exchange houses in the present case do not have any business establishment in India. They have business establishments only in West / Asian Countries, which is not in India. Hence, the location of those service receivers is outside India in a non-taxable territory. 8.6.10 Therefore the services rendered by the Appellant are not liable to service tax and the order demanding service Tax on the Vostro transactions for the period 01.07.2012 to 31.3.2013 is also liable to be set aside. 8.6.11 Further the Appellant relied on the Circular No. 163/14/2012-S.T., dated 10-7-2012 issued by Ministry of Finance (Department of Reven....
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.... transactions are not liable to Tax as the value of taxable service on which service tax is to be paid is the 'gross amount charged' by the service provider for such service. The amount charged should be for providing such service. Where the amount charged by the service provider is not for the service rendered but for some other purpose viz., any other purpose like membership fees, annual licence fees, etc. the same cannot form part of the value of taxable service either under Section 67(1) or under the Valuation Rules framed thereunder. 9.3 As submitted supra, the Appellant during the period 01.04.2012 to 31.03.2013 paid various fees/charges like Annual User Registration fee, Annual Connectivity Fee, Annual Interface Licence Fee, RMA Charges and Traffic Charges to SWIFT. The amount paid by the Appellant towards registration, connectivity, interface licence fee, RMA charges amounted to Rs.56,52,920/-. It is submitted that the above referred fees are not towards provision of any services but are only licence and membership fees. These fees and charges are not contended to be towards any provision of service. Hence it is submitted that in the instant case the other fees a....
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....ever any expenditure or costs are incurred by the service provider in the course of providing/receiving taxable services, all such expenditure or costs shall be treated as consideration for the taxable services so provided or to be provided and shall be included in the value for the purpose of charging service tax on the said services" 9.6 We have perused this portion of the impugned order and we approve the finding. We also find that the "The service provided by [SWIFT (located in Non-Taxable territory] is value-added financial messaging (interface, reconciliation, reporting, encryption) and was contracted by the appellant. Such services fall within 'banking and other financial services' as contained in Section 65(12) of the Finance Act, 1994. Therefore, the entire demand of the Service Tax on SWIFT Charges as upheld in the Impugned Order is sustainable and we do agree with the observations and affirm the demand in favour of the Department. 10. Lastly with regard to the penalty, we take note of the fact that the issue was contentious for a long time and litigations were pending before the Tribunal as well as various High Courts. Taking note of the fact that the issue is inte....