2014 (1) TMI 1372 - AT - Service Tax

Waiver of pre-deposit of service tax - Penalty of equal amount under Section 78 - Banking and Other Financial Services - Out of pocket expenses - Held that - Bulk of the amount relating to the dispute has been collected under the head out of pocket expenses . According to the learned Chartered Accountant, most of the amounts relates to postage/courier charges in relation to the various activities undertaken by them which were after the services of BOFS rendered and these activities should not be treated as part and parcel of the said service and, therefore the same were excludable. On a careful reading of the provisions of Section 65(12), Section 65(105)(zm) and the provisions of the Section 67 of the Finance Act, we are of the, prima facie, view that the services rendered by them cannot be held to be completed till the same is communicated to the concerned persons. Further, the question of giving effect to LC or payments based on the LC cannot be effected, without the communication through SWIFT - prima facie, that the appellant do not have a strong case in their favour - Partial stay granted.

Summary

Issues:
Waiver of pre-deposit of service tax amount, classification of collected amounts as part of taxable services, applicability of extended period of limitation, interpretation of relevant provisions of the Finance Act.

Analysis:
The appellant sought a waiver of pre-deposit of service tax totaling Rs. 10,55,38,108/- along with interest and penalties under Sections 77 and 78 of the Finance Act. The Department alleged that amounts collected by the appellants under the category of "out of pocket expenses," including SWIFT charges, should be treated as part of the value of taxable services. The Commissioner passed an order to this effect based on a show cause notice issued in 2010.

The appellant's representative argued that the collections were for optional services requested by customers and not directly related to Banking and Other Financial Services (BOFS). They contended that expenses like postage, courier charges, and SWIFT charges were collected separately based on actual costs incurred. The representative also highlighted that internal expenses were already included in the service value without additional charges to customers.

The Commissioner argued that services like issuing LCs or other activities were not complete until communication reached the concerned parties, justifying the inclusion of related expenses in the taxable service value. Referring to relevant sections of the Finance Act, the Commissioner emphasized that any activities connected to taxable services should be considered in their valuation.

Upon reviewing the submissions and records, the Tribunal found that a significant portion of the disputed amount was collected under "out of pocket expenses." They opined that services by the appellants were not complete until communicated to the concerned parties, thus rejecting the argument that these activities were separate from BOFS. The Tribunal distinguished a previous case cited by the appellant's representative, stating it did not apply to the current circumstances.

While acknowledging that the appellants did not suppress relevant information, the Tribunal directed them to deposit Rs. 2 crores within six weeks. Compliance was to be reported to the Assistant Registrar by a specified date, with a waiver of pre-deposit for the remaining amount subject to this initial payment, ensuring a stay on recovery until the appeal's disposal.