2020 (2) TMI 567 - AT - Service Tax

Levy of service tax - Commission received by appellant from Money Exchange Houses abroad - Service charges paid to Foreign Banks against the service received by the appellant-bank - Service charges paid to Master Card International - export of services or not - Circular No.111/5/2009-ST dated 24.2.2009 - benefit of exchange houses - extended period of limitation. Commission received by appellant from Money Exchange Houses abroad - HELD THAT - This issue is no more res integra and has been consistently held by the Tribunal as export of service and therefore, not liable to service tax under Finance Act, 1994 - Further, in the case of Kerala State Financial Enterprises Ltd. 2010 (10) TMI 801 - CESTAT, BANGALORE , this Tribunal by relying upon the decision in the case of Muthoot Fincorp Ltd. 2009 (8) TMI 236 - CESTAT, BANGALORE held that the assessee is not liable to service tax as the same falls under the definition of export of service - the appellants are not liable to pay service tax as the service rendered by the appellant fall in the definition of export of service. Service charges paid to Foreign Banks against the service received by the appellant-bank - Service charges paid to Master Card International - HELD THAT - The said services fall in the definition of Import of Service and the same was made liable to service tax on reverse charge basis with effect from 18.4.2006 in view of the decision of the Bombay High Court in the case of Indian National Ship Owners Association 2008 (12) TMI 41 - BOMBAY HIGH COURT . Therefore, up to 18.4.2006, appellants are not liable to pay service tax on reverse charge basis. Extended period of limitation - HELD THAT - Commissioner himself has admitted that short-payment of service tax is not deliberate but owing to the reason of system failure. Further, the Commissioner has dropped the penalty under Section 78 by resorting to Section 80 of the Finance Act. Once the penalty under Section 78 is dropped, it means that the Original Authority did not find that there was an intention to evade payment of service tax on the part of the appellant. The essential condition for invoking the extended period of limitation is that there should be an intention to evade payment of service tax and the same is absent in the present case and therefore the extended period of limitation cannot be invoked - In the present case, the show-cause notice was issued on 3.9.2008 for the period 1.9.2004 to 31.7.2007, and the entire period up to 31.3.2007 is barred by limitation. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Commission received by the appellant from Money Exchange Houses abroad.
2. Service charges paid to Foreign Banks against the service received by the appellant-bank.
3. Service charges paid to Master Card International.

Issue-wise Detailed Analysis:

Issue 1: Commission received by the appellant from Money Exchange Houses abroad

The appellant argued that the commission received from Exchange Houses abroad for services provided should be classified as 'Export of Services' and thus not subject to service tax. The Commissioner had previously found that the service recipients were customers within India, making the service non-exportable. However, the appellant cited Circular No.111/5/2009-ST and several Tribunal and High Court decisions to support their claim that the benefits of the services accrued outside India, thus qualifying as export of service. The Tribunal agreed with the appellant, referencing cases such as Muthoot Fincorp Ltd. and Kerala State Financial Enterprises Ltd., which established that similar transactions were not subject to service tax. The Tribunal concluded that the appellant's services fall under the definition of export of service and are not liable for service tax.

Issue 2: Service charges paid to Foreign Banks against the service received by the appellant-bank

The appellant contended that services provided from outside India and received in India before 18.4.2006 were not subject to service tax, as established by the Bombay High Court in Indian National Ship Owners Association vs. Union of India. The Tribunal agreed, stating that the service charges paid to foreign banks qualify as 'Import of Service,' which became taxable on a reverse charge basis only after 18.4.2006. Therefore, the appellant was not liable for service tax on these services for the period before this date.

Issue 3: Service charges paid to Master Card International

Similar to Issue 2, the appellant argued that the charges paid to Master Card International for services received before 18.4.2006 should not be subject to service tax. The Tribunal upheld this view, referencing the same legal precedent from the Bombay High Court. Consequently, the appellant was not liable for service tax on these charges for the period before 18.4.2006.

Extended Period of Limitation:

The appellant argued that the extended period of limitation should not apply since the short-payment of service tax was due to a system failure and not deliberate evasion. The Commissioner had acknowledged this and dropped the penalty under Section 78 of the Finance Act. The Tribunal noted that the essential condition for invoking the extended period is the intention to evade tax, which was absent in this case. Therefore, the extended period could not be invoked. The show-cause notice issued on 3.9.2008 for the period 1.9.2004 to 31.7.2007 was found to be barred by limitation for the period up to 31.3.2007, referencing the Tribunal's decision in Rochem Separation System (India) P. Ltd., upheld by the Bombay High Court.

Conclusion:

The Tribunal set aside the impugned order, allowing the appellant's appeal with consequential relief, if any, stating that the services in question either qualified as export of services or were not liable for service tax before the specified date, and the extended period of limitation was not applicable.

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