2017 (5) TMI 1302 - AT - Service Tax

Liability of tax - money changing service - It was alleged that the said activities of the Respondent are in the nature of foreign exchange broking service - whether the activity undertaken by the respondent will be covered within foreign exchange broking or money changing? - Held that - There were doubts in the field formations whether the services of foreign exchange broker will also include the activity of money changer who is an authorized dealer of foreign exchange. The CBEC vide their circular dated 06.10.2005 clarified that the services provided by money changers in relation to foreign exchange is covered within the services under section 65 (12). The activity cannot be brought within the nature of foreign exchange broking. It is more in the nature of money changer who purchases foreign exchange and sells the same at prevailing rates. The amount charged by the respondent from customers for issuing letter of credit, demand draft traveler s cheque etc. is not earned by the activity of foreign exchange broking. In terms of the CBEC circular clarifying the issue dated 12.05.2007 such activity which falls within the nature of money changing, cannot be charged to service tax under section 65(12) read with 65 (105)(zm) for the period upto 15.05.2008. Consequently, the demand of service tax in this case is not sustainable and there is no infirmity in the impugned order dropping the service tax. The activity of foreign exchange broking liable to service tax under the provisions of FA has been explained and the activities of the respondent will fall within the said section from 16.05.2008 - appeal rejected - decided against Revenue.

Summary

Issues:
- Classification of activities as foreign exchange broking or money changing
- Liability to pay service tax on activities performed by the respondent

Analysis:
1. Classification of activities: The case involved determining whether the respondent's activities constituted foreign exchange broking or money changing. The Revenue contended that the respondent acted as an intermediary between customers and banks, earning commission explicitly, thus falling under foreign exchange broking. However, the respondent argued that they purchased foreign exchange on their account and sold it as instruments without acting as brokers. The Tribunal analyzed the transactions and noted that the respondent held the title to the foreign exchange, making the activity akin to money changing rather than broking. Citing a CBEC circular, the Tribunal concluded that the activity did not attract service tax as foreign exchange broking until 15.05.2008.

2. Liability to pay service tax: The Revenue challenged the impugned order, arguing that the respondent's activities should be classified as foreign exchange broking, attracting service tax. They highlighted that the respondent acted as an intermediary, earning commission explicitly, and thus should be liable for service tax. However, the Tribunal disagreed, emphasizing that the respondent's role was more aligned with money changing as they purchased foreign exchange on their account and sold it as instruments. The Tribunal referenced statutory provisions and clarifications to support its decision, ultimately upholding the impugned order and rejecting the Revenue's appeal.

3. Penalty imposition: The Revenue also raised concerns about the non-imposition of penalties on the respondent. However, the Tribunal did not find any cause for imposing penalties, as the respondent's activities were deemed not liable for service tax as foreign exchange broking until 15.05.2008. The Tribunal's decision was based on a thorough analysis of the nature of the respondent's transactions and the applicable legal provisions and circulars.

In conclusion, the Tribunal upheld the impugned order, ruling in favor of the respondent and rejecting the Revenue's appeal. The judgment provided a detailed analysis of the activities in question, clarifying the distinction between foreign exchange broking and money changing and determining the liability for service tax based on the nature of the transactions. The decision was grounded in statutory provisions, circulars, and a comprehensive evaluation of the facts presented during the proceedings.