2011 (2) TMI 320 - AT - Service Tax

Demand - whether the appellant-bank is liable to pay service tax amounting to Rs.74 lakhs for the period from April 2002 to April 2006 under the head Banking and other Financial Services (BOFS) - When the card holders used the cards for shopping abroad they had to pay in foreign currency and HDFC recovered from them in addition to the exact value of the goods in foreign currency 3.5% towards what they called margin of profit - BOFS include credit card services provided by a banking company like HDFC - Decided against the assessee by way of direction to the appellant to pre-deposit the amount of Rs.74 lakhs within four weeks and report compliance on 15.04.2011

Summary

Issues:
1. Liability of the appellant-bank to pay service tax for the period from April 2002 to April 2006 under "Banking and other Financial Services" (BOFS) for charges collected from credit card-holders using cards abroad.
2. Whether the profit margin collected by the bank from credit card holders abroad should be considered as the value of "credit card service" under section 65(12) of the Finance Act, 1994.

Analysis:

1. The appellant, a banking company, faced a demand of service tax and education cess amounting to Rs.2.04 crores for the period of April 2002 to April 2007. An amount of Rs.1.30 crores was already paid by the Bank, and the remaining Rs.74 lakhs sought waiver of pre-deposit for stay and recovery, along with the penalty imposed. The issue revolved around whether the bank is liable to pay service tax for the period from April 2002 to April 2006 under the category of "Banking and other Financial Services" (BOFS) for charges collected from credit card-holders using cards abroad. The taxable value in question was the profit margin collected by the bank from credit card holders abroad. The appellant argued that this margin should not be considered as the value of "credit card service." However, the Tribunal did not agree with this argument and cited a precedent where similar recoveries by another bank were deemed to fall under "credit card services" under the Act.

2. The Tribunal examined the definition of BOFS under section 65(12) of the Finance Act, 1994, which includes "credit card services" provided by banking companies. The appellant contended that the profit margin collected from credit card holders abroad should not be considered as part of the credit card service value. However, the Tribunal found the argument unconvincing and referred to a previous case where similar recoveries by another bank were classified as falling under "credit card services." The Tribunal directed the appellant to pre-deposit the amount of Rs.74 lakhs within four weeks, with a compliance report due by a specified date. If the pre-deposit was made, there would be a waiver of pre-deposit and stay recovery concerning the penalty imposed on the appellant.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal interpretations, and the final decision rendered by the Appellate Tribunal CESTAT, Mumbai.