2015 (10) TMI 2464 - AT - Service Tax

Liability of Service Tax Whether Setting up MICR-CPC to attend cheque clearance of Financial Institutions is Banking and Other Financial Services or not? Appellant contended that as per definition Banking and Other Financial Services, there has to be a client or customer, which is absent herein - Cheque clearance activity rendered to other member Banks and not to customers There was a bonafide conduct and no intention to evade tax Revenue contends that liability of interest arises whether there is intention to evade tax or not. Held That - CBEC vide letter dated 25.02.2005 will indicate that amount collected as charges for clearing cheques or clearing house, under Banking and Other Financial Services, to that extent appeal fails on merits - On limitation also appellant could have contested the matter - There was no intention on appellant s part of evading tax liability, which would mean that demand of service tax liability can be only within the limitation period of one year - Appellant is not liable to discharge any interest on amount of service tax liability paid, appeal to that extent is allowed Decision made in case of Gujarat Narmada Fertilizers Co. Ltd 2012 (4) TMI 309 - GUJARAT HIGH COURT followed Decided partially in favour of assessee.

Summary

Issues involved: Taxability of services rendered by the appellant for clearing cheques of member banks and collecting charges, applicability of Banking and Other Financial Services category, liability of interest on service tax payment.

Analysis:

1. Taxability of Services Rendered:
The appellant, a public sector bank appointed by the Reserve Bank of India for setting up MICR-CPC, was under scrutiny for service tax liability on amounts collected for cheque processing during a specific period. The authorities concluded that the appellant was liable for service tax on these amounts, leading to a demand for payment along with interest. The appellant contested the matter on merits and limitation, but the adjudicating authority confirmed the service tax liability while dropping the penalties. The issue revolved around whether the services provided by the appellant fell under the category of Banking and Other Financial Services.

2. Applicability of Banking and Other Financial Services:
The appellant argued that the definition of Banking and Other Financial Services did not apply to their case as they charged a nominal fee per cheque for processing, mainly for member banks and financial institutions. They contended that no services were rendered to individual customers but to member banks. However, after consulting the Law ministry, it was clarified that the activities and charges collected by the appellant fell under Banking and Other Financial Services. The CBEC confirmed this interpretation, leading to the rejection of the appellant's appeal on the merits.

3. Liability of Interest on Service Tax Payment:
The departmental representative asserted that interest liability arises regardless of the intention to evade tax. However, the Tribunal referred to a previous judgment where it was held that if the period of limitation had expired and the duty liability was discharged voluntarily but interest was not paid, the interest liability could be set aside. In this case, since the appellant had discharged the service tax liability with interest during the proceedings, the Tribunal ruled that the appellant was not liable to pay any additional interest. The appeal was allowed to the extent of setting aside the interest liability while upholding the service tax liability.

In conclusion, the Tribunal upheld the service tax liability of the appellant but set aside the interest liability, following the legal precedent and the specific circumstances of the case.