2019 (2) TMI 867 - AT - Service Tax

Banking or Other Financial Services - levy of service tax on Vostro and SWIFT transactions - Held that - The Tribunal in own case INDIAN OVERSEAS BANK VERSUS CCE & ST, CHENNAI 2018 (7) TMI 513 - CESTAT CHENNAI had held that Vostro transactions amount to export of service and therefore, had set aside the demand in respect of Vostro transactions - the demand on Vostro transactions cannot sustain and requires to be set aside. SWIFT transactions - Held that - The Tribunal held that the said transaction falls under Sub-Clause (vii) of Banking or Other Financial Services under Section 65(12) of the Finance Act, 1994 and held that it is a taxable activity - the demand raised in respect of SWIFT transactions requires to interference. Penalty - Held that - Taking note of the fact that the issue is interpretational, we are of the considered opinion that the appellant has given reasonable cause for not paying service tax on SWIFT transactions - penalty set aside. Appeal allowed in part.

Summary

Issues Involved:
Taxability of Vostro and SWIFT transactions under "Banking or Other Financial Services" as per Section 65(12) of the Finance Act, 1994.

Analysis:

Vostro Transactions:
The appellant maintained Nostro/Vostro accounts with foreign banks for facilitating customers in Export and Import business. The appellant paid service tax on Nostro transactions but not on Vostro and SWIFT transactions. Show Cause Notices were issued demanding service tax on Vostro/SWIFT transactions. The Tribunal held that Vostro transactions amount to export of service, setting aside the demand on Vostro transactions.

SWIFT Transactions:
SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) facilitated the exchange of authenticated messages between Member Banks globally. The Tribunal considered SWIFT transactions as taxable under Sub-Clause (vii) of Banking or Other Financial Services under Section 65(12) of the Finance Act, 1994. While upholding the demand on SWIFT transactions, the penalties were set aside due to the interpretational nature of the issue.

Decision:
The demand for service tax on Vostro transactions was entirely set aside. However, the demand for service tax on SWIFT transactions was upheld along with interest, but the penalties were entirely set aside. The Tribunal invoked Section 80 of the Finance Act, 1994, considering the interpretational nature of the issue, and modified the impugned Order accordingly. The appeal was partly allowed with the modifications pronounced in open court on 31.01.2019.