2013 (9) TMI 70 - AT - Service Tax

Demand of service tax export of service - back-office operations - processing of the transactions of their client electronically - stay - Held that - Computerized data processing is specifically excluded from the scope of BAS no question of confirmation of demand under BAS would arise - the activity is processing of the transactions of their client electronically - they were undertaking computerized data processing for their client using the computer systems of the client - the clients are located not only in India but all over the world - appellant is not interacting with the bank s customers for collection of any data - data already collected by the bank in their various branches are electronically processed by the appellant - the appellant is undertaking back-office operations - bulk of data processing is done for the bank s branches situated abroad activity undertaken by the appellant would amount to export of service and on that account also no service tax would be payable by the appellant. - stay granted.

Summary

Issues:
Classification of services for service tax liability under different categories, Interpretation of the scope of 'Business Auxiliary Services' and 'Business Support Services', Prima facie case for grant of stay against the impugned order.

Issue 1: Classification of services for service tax liability under different categories
The appellant, engaged in providing services to a bank and allied entities, had been discharging service tax liability under different categories such as 'Business Auxiliary Services' and 'Business Support Services'. A show cause notice was issued proposing to classify the computerized data processing services under 'Business Auxiliary Services' and demanding a substantial sum towards service tax, interest, and penalties. The adjudicating authority confirmed the demand, stating that the appellant's responsibility included collection of documents, making them liable to service tax. However, the consultant for the appellant argued that the findings were based on incorrect grounds as the activity was primarily computerized data processing, which is excluded from 'Business Auxiliary Services' as per the Finance Act, 1994. The absence of any allegation that the activity was not computerized data processing raised questions on the sustainability of the demand under 'Business Auxiliary Services'.

Issue 2: Interpretation of the scope of 'Business Auxiliary Services' and 'Business Support Services'
The appellant's consultant highlighted that computerized data processing services were specifically excluded from 'Business Auxiliary Services' and included under 'Business Support Services' when brought under the tax net. The consultant argued that since the activity was computerized data processing, it could not fall under 'Business Auxiliary Services', making the demand unsustainable. Additionally, the absence of demands for subsequent periods under 'Business Support Services' indicated acceptance by the department, further supporting the argument against classification under 'Business Auxiliary Services'. Referring to a decision of the Bombay High Court, the consultant emphasized that the tax imposition under a new entry should not apply to periods before its introduction unless explicitly carved out from existing entries, strengthening the case against the demand for the period prior to the inclusion of 'Business Support Services'.

Issue 3: Prima facie case for grant of stay against the impugned order
Upon considering the submissions, the Tribunal noted that the appellant's activity primarily involved processing transactions electronically for the client, which was excluded from 'Business Auxiliary Services'. The Tribunal observed that the appellant's operations amounted to back-office functions for the client, involving electronic processing of data collected by the bank. Given that a significant portion of the processing was for the bank's overseas branches, the activity could be considered as an export of service, exempt from service tax. Consequently, the Tribunal found a strong prima facie case in favor of the appellant and granted unconditional waiver from pre-deposit of the dues adjudged in the impugned order, staying the recovery during the appeal's pendency.

This judgment delves into the classification of services for service tax liability, interpreting the scope of 'Business Auxiliary Services' and 'Business Support Services', and establishing a prima facie case for granting a stay against the demand. The detailed analysis of the arguments presented by the appellant's consultant, the Revenue, and the Tribunal's observations elucidate the complexities involved in determining the tax liability based on the nature of services provided. The Tribunal's decision to grant a waiver and stay the recovery underscores the significance of a thorough assessment of the legal provisions and factual circumstances to ensure a just outcome in tax disputes.