2017 (8) TMI 1114 - AT - Service Tax

Banking and other financial services - cheque return charges, minimum balance violation charges and non-maintenance of Quarterly Average Balance (QAB) received by the appellant were taxable being the consideration received for providing banking service to its Customers - Penalty - Held that - The scheme of taxing entry under Section 65(105)(zm) of the Act, envisages taxation of any services provided by a bank and all such services provided in relation to provision of banking services are sought to be taxed by that entry. Accordingly, the scope of services provided in relation to operation of the bank account falls within its ambit. All the three charges stated above were received by the appellant in relation to provision of banking service and most particularly operation of bank accounts opened with it by its customers. The receipts made by appellant from its customers for acting for them on their instructions or terms agreed between them are valuable consideration received by the appellant while providing service of maintaining their accounts with it. That is not the penalty realized by the bank from its customers. Penalty as is commonly understood in law is a realization against infraction of law. The appellant bank being a service provider sought to recover cost of services provided to its customers for presenting their cheque for realization or for honouring their cheques presented by drawees. Such cost recovered does not assume the character of penalty since that was sought to be recovered in consonance with the terms agreed between the parties. Similarly, the charges collected by it, in respect of accounts falling below the minimum balance required to be maintained in respect of accounts is a recovery of cost of maintaining such accounts. That cannot also be characterized as penalty. The cost recovered by the appellant bank from the account holders whose quarterly average balance fall, below the agreed amount is nothing but a consideration received by it to provide the service of banking to the customers. Naming of such cost recovery as violation charges does not alter the object of taxation of the receipt made by it in relation to the provision of service of operation of accounts opened by its customers with it. Penalty - Held that - it is the Revenue s case that there was deliberate intention of the appellant to keep Revenue in dark without disclosure of the aforesaid receipts in its returns required to be filed under law. It may be stated that what that is required by law to disclose to Revenue by an assessee, if not disclosed and such non-disclosure is attributable to the intention of the assessee, that amounts to suppression. It was left to the assessee to include the aforesaid three receipts in its tax return at least under protest. But that was not done. Therefore, it cannot be said that the appellant had honest belief of no taxation of the aforesaid three receipts. Such deliberate non-disclosure and non-payment of tax on aforesaid three receipts calls of levy penalty on the appellant. Appeal dismissed - decided against the assessee.

Summary

Issues Involved:
1. Imposition of service tax on cheque return charges, minimum balance violation charges, and charges for non-maintenance of Quarterly Average Balance (QAB).
2. Nature of the receipts (whether penal or service charges) and their taxability.
3. Applicability of penalties under various sections of the Finance Act, 1994.

Detailed Analysis:

1. Imposition of Service Tax on Specific Charges:
The primary issue was whether service tax is payable on cheque return charges, minimum balance violation charges, and charges for non-maintenance of QAB. The adjudicating authority concluded that these charges are part of the service provided by the bank and thus taxable. The appellant argued that these charges are penalties and not part of the gross value of taxable services. However, it was determined that these charges are indeed for services rendered and fall under the scope of "banking and financial services" as defined in Section 65(12)(ix) of the Finance Act, 1994.

2. Nature of the Receipts:
The appellant contended that the charges are penal in nature and should not be taxed. They cited Circulars F.No.332/29/2009-TRU dated 26.4.2010 and No.96/7/2007-ST dated 23.8.2007, which clarified that penal charges are not taxable. However, the tribunal found that these charges are not penalties but considerations for services rendered in relation to the operation of bank accounts. The term "in relation to" was interpreted broadly, following the precedent set by the Supreme Court in Doypack Systems Pvt. Ltd., to include these charges within taxable services.

3. Applicability of Penalties:
The tribunal upheld the penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994. It was found that the appellant deliberately failed to disclose these charges in their returns, amounting to suppression of facts with intent to evade tax. The adjudicating authority's imposition of penalties was confirmed as appropriate given the deliberate non-disclosure and non-payment of tax.

Conclusion:
The appeal was dismissed, and the service tax levied on the appellant was confirmed. The tribunal held that the charges in question are part of the taxable service of operating bank accounts and not penalties. The penalties imposed for non-disclosure and non-payment of tax were also upheld.