2013 (12) TMI 972 - AT - Service Tax

Stay application - Demand of service tax - Receipt of amount from the Foreign Exchange Department, Kolkata in the nature of FOREX trading / dealing or otherwise as FOREX - Held that - There is no dispute that the amount was transferred from the Kolkata Branch to the applicant s Branch. It is also seen from the adjudication order that this amount is in relation to the profit arising out of the FOREX transaction credited to exchange and commission account of the branch. We find that the Tribunal in the applicant s own case allowed the appeal with the observation that tax is not leviable on the profit earned out of dealing in foreign exchange. In view of that the applicant has made out a prima facie case for waiver of predeposit of the entire dues - Prima facie case in favour of assessee - Stay granted.

Issues:
1. Tax liability on profit transfer from one branch to another in the case of banking and financial services.
2. Applicability of service tax on profit arising from FOREX transactions.
3. Invocation of extended period of limitation based on suppression of facts.

Issue 1: Tax liability on profit transfer between branches

The judgment addresses the demand for tax, interest, and penalty on the transfer of profit from the Kolkata Branch to the Chennai Branch of the applicant, engaged in banking and financial services. The appellant argues that the transfer of profit from FOREX transactions is merely an internal allocation and should not attract service tax. Reference is made to a Tribunal decision in a similar case, supporting the appellant's stance. The Tribunal acknowledges the transfer but notes that the profit is related to FOREX transactions and was credited to the exchange and commission account of the branch. Relying on its previous ruling that tax is not applicable on profits from foreign exchange dealings, the Tribunal grants a waiver of predeposit and stays the recovery during the appeal.

Issue 2: Applicability of service tax on FOREX transaction profits

The appellant contends that the profit transferred between branches is not subject to service tax as it arises from dealing in foreign exchange. The Tribunal recognizes the nature of the transferred amount as linked to the profit from FOREX transactions, which was reflected in the branch's accounts as commission and exchange remuneration. However, the Tribunal's precedent supports the appellant's argument that service tax is not leviable on profits earned from foreign exchange dealings. This position influences the decision to grant a waiver of predeposit and stay the recovery of dues during the appeal process.

Issue 3: Invocation of extended period of limitation

The respondent asserts that the transaction in question should be considered as a commission and points out that the amount was not included in the monthly statement, indicating suppression of facts. Moreover, it is argued that there is no evidence of tax payment on this amount by the Kolkata Branch. However, the Tribunal finds that there is no suppression of facts and, based on the lack of evidence of tax payment by the Kolkata Branch, decides in favor of the appellant. Consequently, the Tribunal rules in favor of the appellant, granting a waiver of predeposit and staying the recovery of dues pending the appeal process.

This detailed analysis of the judgment highlights the key legal issues concerning tax liability on profit transfers between branches, the applicability of service tax on FOREX transaction profits, and the invocation of the extended period of limitation based on suppression of facts. The Tribunal's decision, supported by relevant legal precedents and arguments presented by both parties, ultimately results in granting relief to the appellant in this case involving banking and financial services.

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