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2016 (1) TMI 767 - AT - Service TaxClassification of Import of services from M/s. Society for Worldwide Interbank Financial Telecommunication (SWIFT) which is a non-resident entity, not having an office in India - reverse charge - service involved is transfer of information and also includes data processing - Banking and Other Financial Services or not - Held that - From the detailed process involved, it is clear that the activities appear to amount to provision and transfer of information and data processing in relation to banking and other financial services, as defined under the Act and clearly covered under the entry provided in sub-clause (a)(vii) of Section 65(12) i.e. provision and transfer of information and data processing . As regards the contention of the appellant that SWIFT does not fall under the category of banking and other financial institution s as SWIFT is not engaged in the business of banking and other financial services, we find that if any person provides the service which is covered under the four corners of definition of Banking and Other Financial Services , it shall be taxable. As per the plain reading of the definition, apart from banking and other financial institution , the category of a person such as body corporate and any other person are also covered. Therefore it is not significant as to what is the nature of the person who is providing the service, but if the service is covered under the definition, such service is liable to service tax, even if it is presumed that SWIFT is not involved in Banking and Other Financial Services . The service shall remain taxable as the service is clearly covered under the definition of Banking and Other Financial Services in clause (vii) of Section 65 (12). Moreover the appellant being liable to pay the service tax is deemed service provider . Therefore, the status of the appellant is required to be considered and not the status of service provider who is located outside India. For this reason the appellant is undisputedly the deemed banking and other financial institution. - However the demand of the period prior to 18-4-2006 is not sustainable. On the issue of principle of mutuality, we find that the relationship between the SWIFT and the Appellant is not like club or Association and their members. As regards the submission of the appellant that present case is of revenue neutrality as the tax payable on the subject service is cenvatable, we are of the view that the bank is providing various services, some of the services are taxable and some are exempted. Therefore, it cannot be decided that the entire service tax payable on services of SWIFT can be allowed as Cenvat Credit. Merely because Section 80 was invoked, it cannot be said that proviso to Sec 73(1) shall not apply. Both provisions have separate ingredients. In the present case the appellant have not disclosed the data related to service charges paid to SWIFT to the department. Therefore, as there is a suppression of the fact on the part of the appellant, proviso to Section 73(1), gets correctly invoked. Demand conformed invoking the extended period of limitation - Decided partly in favor of assessee.
Issues Involved:
1. Classification of services provided by SWIFT. 2. Service tax liability on reverse charge basis. 3. Applicability of revenue neutrality. 4. Principle of mutuality. 5. Limitation and time-bar of the demand. Issue-wise Detailed Analysis: 1. Classification of Services Provided by SWIFT: The primary issue is whether the services availed by the appellant from SWIFT fall under the category of "Banking and Other Financial Services" as defined under Section 65(12) of the Finance Act, 1994. The appellant contended that the services provided by SWIFT are limited to the transmission of messages and do not involve data processing. However, the Tribunal found that the services provided by SWIFT include both the transfer of information and data processing, as the messages are encrypted and decrypted in SWIFT's central system, indicating data processing. Therefore, the services are rightly classifiable under "Banking and Other Financial Services." 2. Service Tax Liability on Reverse Charge Basis: The Tribunal upheld the Commissioner's decision that the appellant is liable to pay service tax on a reverse charge basis for the services received from SWIFT, a non-resident entity. The relevant rule and section, Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, and Section 66A of the Finance Act, 1994, were cited to establish the liability of the service recipient in India to discharge the service tax. 3. Applicability of Revenue Neutrality: The appellant argued that the service tax paid on SWIFT services would be available as Cenvat Credit, making the exercise revenue neutral. The Tribunal rejected this argument, stating that the appellant provides both taxable and exempt services, and it cannot be determined that the entire service tax payable on SWIFT services would be allowed as Cenvat Credit. The Tribunal held that the case does not qualify for revenue neutrality. 4. Principle of Mutuality: The appellant claimed that the principle of mutuality applies, as SWIFT is a society where all commercial banks are members, and services provided within such a society should not be taxable. The Tribunal dismissed this argument, distinguishing the relationship between SWIFT and the appellant from that of a club and its members. The Tribunal noted that the transactions between SWIFT and the appellant are purely business transactions based on the actual quantum of services provided, and thus, the principle of mutuality does not apply. 5. Limitation and Time-Bar of the Demand: The appellant contended that the demand is time-barred as the show cause notice was served beyond the normal period. The Tribunal found that the appellant had not disclosed the service charges paid to SWIFT to the department, constituting suppression of facts. Therefore, the extended period under the proviso to Section 73(1) of the Act was correctly invoked. However, the Tribunal acknowledged that the issue involved interpretation of the definition of "Banking and Other Financial Services," providing a reasonable cause for not imposing penalties under Section 80 of the Act. Conclusion: - The demand for the period prior to 18-04-2006 was set aside. - The demand of service tax for the period from 18-04-2006 onwards, along with interest, was maintained. - The appeal was partly allowed in these terms. Order Pronounced in Court on 05.1.16.
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