2008 (9) TMI 73 - AT - Service Tax

Demand under the head Banking and Other Financial Services (BOFS) on the amount paid by Citibank (appellant) to VISA as consideration for the service received from the latter - prima facie case for the appellant appellant has explained the mechanism of operation of VISA cards and we are convinced, for the present purpose, that the appellant qua Acquiring Bank is not liable to pay service tax in the BOFS category in respect of the amount paid by them to VISA during the material period

Summary

Issues:
Demand of service tax under the head "Banking and Other Financial Services" (BOFS) for the period August 2002 to March 2006.

Analysis:
The judgment delivered by the Appellate Tribunal CESTAT, CHENNAI involved a dispute regarding the demand of service tax amounting to over Rs. 2.49 crores from the appellants under the category of "Banking and Other Financial Services" (BOFS) as per section 65(12) of the Finance Act, 1994, for the period between August 2002 to March 2006. The ld. Commissioner imposed penalties on the appellants in addition to the tax demand. The essence of the case revolved around the transactions related to VISA cards issued by Citibank to customers and utilized for shopping purposes. The appellant, acting as both an 'Issuing Bank' and 'Acquiring Bank,' would acquire the debt arising from the shopping transactions made using VISA cards. The service tax demand was based on the gross amount paid by the Acquiring Bank to VISA during the disputed period. The appellant contended that the service received from VISA was in the nature of "settlement" as per clause (33a) of section 65 of the Finance Act, 1994, inserted on 1-5-2006, and therefore, the levy was not applicable before this date.

The appellant argued that the transactions between the Acquiring Bank and VISA were akin to the services rendered by the Acquiring Bank to Merchant Establishments. They highlighted a similar demand that was dropped by the Commissioner in a previous order concerning credit card services. The appellant also pointed out that VISA had offices in India during the relevant period, suggesting that any service tax liability should have been imposed on VISA directly as per the provisions existing prior to 18-4-2006 when section 66A was inserted in the Finance Act, 1994. The appellant relied on a precedent where services provided from outside India before 18-4-2006 were deemed non-exigible to service tax in the hands of the service-recipient in India.

After thorough consideration of the submissions and arguments presented, the Appellate Tribunal found a prima facie case in favor of the appellant against the demand of service tax and penalties. The Tribunal acknowledged the explanations provided by the ld. consultant regarding the operation of VISA cards and concluded that the appellant, acting as the Acquiring Bank, was not liable to pay service tax under the "BOFS" category for the amount paid to VISA during the relevant period. The Tribunal granted a waiver of pre-deposit and a stay of recovery concerning the service tax, interest on tax, and penalties, pending further proceedings.