2011 (1) TMI 474 - AT - Service Tax

Service tax liability - Whether the amounts recovered by the State Bank from their customers showing the charges as expenses incurred on postal services for rendering banking services to the customers have to be liable to service tax - the State Bank of India is that they are in the business of providing banking services and not in the business of providing postal services - In respect of banking service provided by them they have discharged the service tax on the basis of amount charged by them - As per their understanding of the Section 67 they were not to pay service tax on the postal service which they utilised in the course of providing banking services to their customers. We note that in the case of services rendered by some branches of SBI the department has accepted the argument of SBI at the adjudication stage and those orders are under Appeal - Therefore it proper to issue a direction that the department shall not insist on any payment of tax demanded from State Bank of India in respect of the Appeals already filed till there is a decision by Committee on Disputes.

Summary

Issues:
Dispute regarding liability to service tax on charges for postal services by State Bank of India during a specific period.

Analysis:
The judgment by the Appellate Tribunal CESTAT, New Delhi addresses a dispute between the Central Excise Commissioner Rohtak and State Bank of India regarding the liability to pay service tax on charges for postal services incurred by the bank while providing banking services to customers between 10th Sept. 2004 to 18th April 2006. The Tribunal notes that during this period, there were no clear Valuation Rules under Section 67 of the Finance Act, 1994. The relevant provision of Section 67 at that time stated that the value of any taxable service shall be the gross amount charged by the service provider. State Bank of India argued that they are in the business of providing banking services, not postal services, and thus should not be liable to pay service tax on postal services utilized in providing banking services. The Tribunal acknowledged that the department had accepted this argument in some cases at the adjudication stage, which are currently under appeal.

The Tribunal found merit in State Bank of India's argument and decided that a detailed examination of the matter is necessary. As an interim measure, the Tribunal directed that the department shall not insist on payment of tax demanded from State Bank of India for the appeals already filed until a decision is made by the Committee on Disputes. The Tribunal emphasized the importance of parties providing COD clearance from the competent authority for further consideration. The judgment highlights the need for a thorough review of the issue and the importance of awaiting a decision from the appropriate authority before enforcing tax demands on State Bank of India.

In conclusion, the Tribunal's decision provides temporary relief to State Bank of India by suspending the insistence on tax payment until a final decision is reached. The judgment underscores the significance of proper documentation and adherence to relevant provisions in resolving disputes related to service tax liability on charges for postal services during the specified period.