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2018 (7) TMI 513 - AT - Service TaxReverse Charge Mechanism - Banking and Financial Services - the appellants are maintaining Nostro and Vostro Accounts with foreign banks to help their customers dealing in export and import business and for paying/collecting bank charges for such services - penalty imposed in relation to Nostro accounts - also appellants are utilising the services of SWIFT, Belgium, for securely and reliably exchanging financial information relating to banking transactions. Penalty imposed on Nostro Accounts - Held that - The appellant has discharged the service tax along with interest on being pointed out by the department - The issue whether assesse is liable to pay service tax under reverse charge mechanism was contentious for a long time - the penalty imposed in regard to Nostro transactions is unwarranted and requires to be set aside. Demand of service tax on SWIFT transactions - Held that - he service rendered under SWIFT would very well get covered under sub-clause (vii) of the definition of Banking and other Financial services as provided under 65 (12). Though in the SCN, sub-clause (vii) and (ix) has been mentioned, we find that the allegation as well as activity of transfer of information and data processing which is rendered has been clearly mentioned in the SCN. Therefore, the mere mentioning of the sub-clause wrongly in our view would not make the SCN vitiated or invalid - argument of appellant fails - taking note of the fact that the demand has been made under reverse charge mechanism, we consider that the period prior to 18.04.2006 requires to be set aside - also, the penalty for the period after 18.04.2006 is unwarranted and requires to be set aside - thus, the demand for the period after 18.04.2006 is upheld whereas the penalty on this issue is set aside. Demand of service tax on Vostro transactions - case of appellant is that the service qualifies as export of service - Held that - From the manner of operation and working of Vostro we are able to see that the appellant retains the charges for providing the service. The account is maintained in Indian Rupees, but the inward remittances are in foreign convertible currency received from the Bank located outside India; the appellant retains the charges in Indian currency out of the inward remittance received from Bank located outside India - the condition that receipt in foreign currency in effect satisfied - thus, being export of services, the demand made on Vostro transactions cannot sustain and requires to be set aside. Appeal allowed in part.
Issues Involved:
1. Demand of Service Tax (ST) on Nostro transactions. 2. Demand of Service Tax (ST) on Vostro transactions. 3. Demand of Service Tax (ST) on SWIFT transactions. Detailed Analysis: 1. Demand of Service Tax on Nostro Transactions: The appellants were engaged in providing Banking and Financial services and maintained Nostro accounts with foreign banks. The department issued a Show Cause Notice (SCN) dated 17.08.2010, proposing to demand service tax under the reverse charge mechanism. The original authority confirmed the service tax payable for the period April 2005 to March 2010. The appellant paid the service tax for the period after 18.04.2006 along with interest on 16.02.2010 and did not contest the demand for this period, only challenging the penalty imposed. The tribunal noted that the appellant had discharged the service tax along with interest before the issuance of the SCN and held that the penalty imposed was unwarranted and set it aside. 2. Demand of Service Tax on SWIFT Transactions: The appellant utilized the services of SWIFT, Belgium, for exchanging financial information securely. The department alleged these transactions were taxable under "Banking and Financial Services." The SCN mentioned sub-clauses (viii) and (ix) of Section 65 (12), but the Commissioner confirmed the demand under sub-clause (vii), stating the wrong mention of sub-clauses was an error. The tribunal found that SWIFT services, used for sending secure information/data, fall under sub-clause (vii) of "Banking and Financial Services" and are taxable. However, the demand for the period prior to 18.04.2006 was set aside, following the Indian National Shipowner's Association case. The penalty for the period after 18.04.2006 was also set aside, considering the contentious nature of the issue. 3. Demand of Service Tax on Vostro Transactions: The appellant maintained Vostro accounts for foreign banks, facilitating payments in local currency (INR). The department argued that these services did not qualify as export of services since the consideration was received in Indian currency. The tribunal noted that the inward remittances were in convertible foreign currency, and the charges were retained in Indian currency, satisfying the condition of receipt in foreign currency. The tribunal referred to the Board Circular No. 111/5/2009-ST and the Paul Merchants case, which clarified that such transactions qualify as export of services. Consequently, the demand on Vostro transactions was set aside in entirety. Conclusion: a) The demand of service tax on Nostro transactions after 18.04.2006 is upheld, but the penalty is set aside. b) The demand of service tax on SWIFT transactions prior to 18.04.2006 is set aside. The demand after 18.04.2006 is upheld, but the penalty is set aside. c) The demand of service tax on Vostro transactions is set aside in entirety. The appeal is disposed of accordingly with consequential reliefs, if any.
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