2018 (8) TMI 702 - AT - Service Tax

Banking and Other Financial Services - dormant account charges - It appeared to the department that such charges would be required to be part of the gross amount of value of taxable service for purposes of discharging service tax liability - Held that - There is no service being provided to the customer in the course of levying such charges. The customer in any case was not operating his account for quite some time, only for which reason the account has been declared dormant or inoperative by the bank. By levying dormant account charges such account holders are not getting any additional services or benefits that they were not getting earlier. This being so, levy of such charges are nothing but a penalty imposed on such account holders for keeping their account inoperative. Banks need a constant rolling of money and deposits, and inoperative or dormant account will not help this purpose. The dormant account charges are therefore nothing but a charge in the nature of penalty. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether dormant account charges collected by a bank are liable to service tax.
2. Whether dormant account charges are considered as providing a service to customers.
3. Applicability of penalties under various provisions of law.

Analysis:

Issue 1:
The case revolved around the liability of dormant account charges collected by a bank to service tax. The department contended that such charges should be part of the gross amount of value of taxable service for service tax purposes. The appellant argued that before a certain date, such charges were not taxable as they were not providing any service to customers but were collected as a penalty. The tribunal analyzed the nature of dormant account charges and concluded that they were in the nature of a penalty and not a consideration for providing a service. The tribunal referred to earlier circulars and decisions to support this conclusion, ultimately setting aside the demand for service tax on dormant account charges.

Issue 2:
The key argument here was whether dormant account charges are considered as providing a service to customers. The department argued that such charges are linked to the services provided by the bank in maintaining and operating inoperative bank accounts. However, the tribunal disagreed, stating that customers were not receiving any additional services or benefits by paying dormant account charges. The tribunal emphasized that such charges were essentially penalties imposed on customers for keeping their accounts inoperative, rather than fees for services rendered.

Issue 3:
Regarding penalties imposed under various provisions of law, the tribunal noted that the Commissioner (Appeals) had set aside the penalties under Section 76 of the Finance Act, 1994 but upheld the remaining portion of the order of the original authority. The tribunal ultimately set aside the impugned order, allowing the appeal with consequential benefits as per law.

In conclusion, the tribunal ruled in favor of the appellant, holding that dormant account charges were in the nature of penal charges and not subject to service tax. The decision was supported by the interpretation of relevant legal provisions, circulars, and previous judgments, ultimately providing relief to the appellant.