2016 (3) TMI 354 - SC - Service Tax

Business auxiliary service - services provided by the Banks for collection of telephone bills, collection of insurance premium on behalf of the client companies - Held that - Clause (12) of Section 65 covers all charging services rendered by the Banks. - when cash management services stood excluded from the purview of service tax at the hands of the Bank until 31.05.2007, the authorities cannot levy service tax on an activity which is essentially cash management service, by taking aid of other general charging heads, such as business auxiliary service. Further, Section 65A of the Act, while dealing with classification of taxable services, has clarified in sub-section (2) that when for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be effected in the prescribed manner - No demand can be made - Decided against the revenue.

Summary

Issues:
1. Interpretation of whether services provided by a bank, such as collection of telephone bills and insurance premiums, are liable to service tax under the category of "business auxiliary service."

Analysis:
The judgment in question pertains to a case where the appellant challenged a High Court decision that services provided by a bank, including cash management services, were not liable to service tax under the category of "business auxiliary service." The key legal issue revolved around the interpretation of Section 65(19) of the Finance Act, 1994, to determine the tax liability of the services provided by the bank. The High Court had relied on a Circular issued by the Central Board of Excise and Customs (CBEC) to support its decision. The Circular clarified that cash management services, including collection of receivables and management of liquidity, were to be levied with service tax. The appellant contended that cash management services were excluded from the purview of service tax until 31.05.2007, as mentioned in Section 65(12) of the Act. The appellant presented write-ups supporting the concept of cash management services, which aligned with the CBEC's clarification. The High Court also considered the amendments in Section 65(12) and Section 65(19) while making its decision.

The High Court's judgment was based on the understanding that banking and financial services, including cash management, were specifically covered under Section 65(12) of the Act and were not to be taxed under the broader category of "business auxiliary service." The High Court emphasized that the specific exclusion of cash management services had been removed from the Act from 01.06.2007 onwards. Additionally, the High Court analyzed Section 65A of the Act, which provides guidelines for classifying taxable services. It highlighted that specific descriptions take precedence over general descriptions and that services should be classified based on their essential character. The High Court concluded that the appellant's appeals challenging the tax liability of the bank's services should be dismissed. The judgment underscored that the statutory provisions supported the High Court's decision, warranting no interference.

In summary, the Supreme Court upheld the High Court's decision, ruling that the services provided by the bank, including cash management services, were not liable to service tax under the category of "business auxiliary service." The judgment extensively analyzed the relevant provisions of the Finance Act, 1994, and the Circular issued by the CBEC to reach a conclusion on the tax liability of the services in question. The Court's interpretation of Section 65(12) and Section 65(19), along with the guidelines provided in Section 65A, formed the basis for dismissing the Revenue's appeals.