2014 (1) TMI 1602 - AT - Service Tax

Penalties under Section 76, 77 and 78 - Demand of service tax - Business Auxiliary Services - Computerised data processing services - Held that - In the show cause notice it was alleged that the customers of the bank submitted physical documents at the bank s branches and the appellant performed computerised processes on the input submitted to the bank using the bank s systems and saved the output on the bank s system, which amounted to services incidental or auxiliary to the customer care services rendered by the bank, whereas the reasoning recorded in the impugned order is that the appellant collected data from the clients customers, and the banks during the course of providing banking services also provided customer care services, and the services rendered by the appellant to the bank would be incidental or auxiliary to the customers care services provided by the bank. Thus, there is a complete variation between the ground alleged in the show cause notice and the grounds on which the demands have been confirmed. On that ground alone the impugned order is liable is to be set aside. Since bulk of the service has been rendered to clients located abroad and the payments has been received in convertible foreign exchange, the appellant is not liable to pay service tax on the export of services undertaken by them. In any case the exemption under Notification NO. 21/2003 dated 20/11/2003 would have been available to them since the consideration for the services rendered was received in foreign currency. For the period prior to 20/11/2003, Board s circular dated 24/05/2003 clarifies that no service tax would be leviable on export of services for which consideration is received in convertible foreign exchange - Decided in favour of assessee.

Issues Involved:
1. Classification of services provided by the appellant.
2. Applicability of service tax on computerised data processing services.
3. Exemption for services provided to foreign clients.
4. Time-barred nature of the show cause notice.
5. Reliance on Board's Circular for classification.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The appellant, M/s. TCS e-serve Ltd., provided collection and sales services, call center services, and computerised data processing services to Citi group entities. They discharged service tax on collection and sales services under 'Business Auxiliary Services' (BAS) from 1/07/2003, on call center services under BAS post 01/03/2006, and on computerised data processing services under Business Support Services (BSS) from 01/05/2010. The department issued a show cause notice for the period July 2003 to March 2004, alleging that computerised data processing services fell under BAS, as defined under Section 65(19)(iv) of the Finance Act, 1994. The adjudicating authority concluded that the appellant's activities included document collection and were incidental to customer care services, thus confirming the demand for service tax, interest, and penalties.

2. Applicability of Service Tax on Computerised Data Processing Services:
The appellant argued that computerised data processing services do not fall under clause (iv) of Section 65(19) of BAS and should be classified as 'information technology service,' which is excluded from BAS. They contended that their services to banks, which provide banking and financial services, cannot be considered incidental to customer care services. The Tribunal found merit in this argument, noting that banking and financial services are the primary functions of banks, and any customer care services are ancillary to these primary services. Therefore, computerised data processing services, being part of 'Information Technology Services,' were excluded from BAS during the impugned period and became taxable under BSS from 01/05/2006.

3. Exemption for Services Provided to Foreign Clients:
The appellant submitted that services provided to foreign clients, with payments received in convertible foreign exchange, were exempt from service tax as per Circular No. 56/5/2003 dated 25/04/2003 and relevant Tribunal decisions. The Tribunal agreed, stating that service tax is not applicable to export of services, and the appellant's services were used or consumed by banks abroad. Additionally, Notification No. 21/2003 dated 20/11/2003 exempted services rendered with consideration received in foreign currency.

4. Time-barred Nature of the Show Cause Notice:
The appellant disclosed their activities to the department in October 2003, but the show cause notice was issued only on 23/10/2008, after more than five years. The Tribunal found the demand to be time-barred and unsustainable on this ground.

5. Reliance on Board's Circular for Classification:
The Revenue relied on Circular No. 62/11/03-ST dated 21/11/2003, which clarified that services like pay-roll processing and accounts management, even using computer programs, are taxable under BAS. The Tribunal noted that the explanation to BAS specifically excludes 'information technology services,' which includes computerised data processing. The Tribunal emphasized the significance of punctuation in statutory interpretation, concluding that the Board's clarification was incorrect.

Conclusion:
The Tribunal set aside the impugned order, finding that the appellant's activities were excluded from BAS during the relevant period, the demand was time-barred, and services provided to foreign clients were exempt from service tax. The appeal was allowed with consequential relief.

← Previous Next →