2009 (4) TMI 588 - AT - Central Excise

Summary

Issues involved: Application for waiver of predeposit and stay of recovery of service tax, penalty imposed u/s 78 of the Finance Act '94, charges collected from credit and debit card holders, suppression of facts regarding non-payment of service tax, classification of charges under different service categories, applicability of tax on mark up charges, demand for tax for specific periods, argument against tax liability for services provided outside India, contesting the invocation of larger period for tax demand.

Waiver of Predeposit and Stay of Recovery:
- M/s. Citibank N.A. sought waiver of predeposit and stay of recovery of Rs. 4,87,83,712/- demanded as service tax, penalty of Rs. 5.15 crores u/s 78 of the Finance Act '94, and applicable interest.
- Commissioner found Citibank charged mark up on credit and debit card transactions abroad, not paying service tax on these charges during 1-7-01 to 30-4-06.
- Citibank suppressed non-payment of service tax on mark up, leading to demand for the larger period from 4/02 to 4/06 for credit cards and 9/04 to 4/06 for debit cards.

Classification of Charges:
- Charges collected for credit card holders were deemed as "Credit Card Service" under "Banking and Other Financial Services" u/s 65(12)(a) of the Act.
- Charges for debit card holders fell under "Operation of Bank Accounts" u/s 65(12) of the Act from 10-9-04.
- Commissioner imposed a penalty of Rs. 5.15 crores on Citibank u/s 78 of the Act due to suppression of facts.

Tax Liability and Legal Arguments:
- Citibank argued mark up was part of the cost of goods/services purchased abroad, not a consideration for bank account operations.
- Claimed services provided outside India were not taxable, citing case laws to support their position.
- Contested the demand for tax for the specified periods and the invocation of a larger period for tax demand.

Tribunal Decision:
- Tribunal found the charges for credit card services and operation of bank accounts were taxable during the material period.
- Deemed the demand under "Operation of accounts" sustainable for debit card transactions.
- Deferred the limitation issue for final hearing, considering Citibank's communication with the department and the need for further scrutiny.
- Directed Citibank to make a pre-deposit of Rs. 1.5 crores from their Cenvat account, with waiver of pre-deposit and stay of recovery for the balance dues pending appeal decision.