2023 (3) TMI 1460 - AT - Service Tax

Levy of service tax - Banking and other Financial Services - earning of profit on the transaction of foreign exchange made by the appellants - department has confirmed the service tax demand on the profit earned by the appellants on making the transaction in foreign exchange - HELD THAT - Since, the element of profit earned is not in context with any provision of taxable service, there is no scope for levy of service tax on such profit element earned by the service provider, owing to various reasons viz. fluctuation in currency rate etc. In other words, the profit element in question earned by the appellants is out of trading of the foreign currencies and not as a consideration for the services rendered towards purchase and sale of foreign currency, on which due service tax liability had already been discharged by the appellants. Since there is no element of any provision of service, by which the disputed profit margin, was generated, the said element of profit shall not be considered as a taxable value for the purpose of levy of service tax. This Tribunal in the case of STATE BANK OF INDIA COMMERCIAL BRANCH VERSUS COMMR. OF C. EX., JAIPUR 2012 (2) TMI 494 - CESTAT NEW DELHI and M/S STATE BANK OF BIKANER JAIPUR VERSUS CCE, JAIPUR-I 2011 (6) TMI 442 - CESTAT, DELHI has held that margin of profit is not taxable under the Finance Act, 1994 and it is only the gross value, which is recognised under the statute for sufferance of the tax element on the value of the services rendered, which admittedly, the appellants in this case, has duly complied with - Since, upon proper analysis of the legal provisions, the competent authorities in some other Zone had decided not to agitate the matter further by way of filing appeal, consistency is required to be maintained in adopting the ratio that profit element on provision of the taxable service shall not be subjected to levy of service tax inasmuch as such profit element is not a consideration for provision of the taxable service. There are no merit in the impugned order, insofar as it has confirmed the adjudged demands on the appellants - appeal allowed.

Summary

Issues involved:
The appeal challenges the confirmation of service tax demand, interest demands, and penalties imposed by the learned Commissioner of Service Tax-V, Mumbai, in relation to the profit earned by the appellants on foreign currency transactions.

Summary:

Issue 1: Taxability of profit earned on foreign currency transactions
The appellants, engaged in providing various taxable services including Banking and Financial Services, earned profit from the sale and purchase of foreign currency. The dispute centered on whether such profit should be considered taxable under the category of "Banking and other Financial Services." The department contended that the profit earned should be subject to service tax. However, the appellants argued that the profit element from foreign currency trading should not be considered as a taxable value for the purpose of service tax levy, as it is distinct from consideration for services rendered.

Issue 2: Legal precedent and consistency in tax treatment
The appellants cited previous Tribunal decisions and a case involving Andhra Bank where the profit element on foreign exchange transactions was not considered taxable. They argued that the issue was settled and should not be subject to further debate. The Tribunal, after examining the case records, agreed with the appellants' position. It held that the profit margin is not taxable under the Finance Act, 1994, and that the profit element from foreign currency trading does not constitute consideration for taxable services. The Tribunal emphasized the need for consistency in tax treatment, as demonstrated by the decision of the Hyderabad Commissionerate and the Committee of Chief Commissioners not to appeal a similar case.

Conclusion:
The Tribunal found no merit in the impugned order confirming the service tax demands on the appellants. It ruled in favor of the appellants, setting aside the impugned order and allowing the appeal.

Separate Judgment:
No separate judgment was delivered by the judges in this case.