2020 (10) TMI 479 - AT - Service Tax

Levy of service tax - Banking and other financial services - third party payments for exports effected by M/s AKR Textiles to buyer outside India - negative list regime - POPOS rules - applicability of 29/2004-ST dated 22nd September 2004 - HELD THAT - It has been pointed out that the levy of tax on charges deducted by overseas banks, in identical situation, has been held by the Tribunal, in Rogini Garments and ors v. Commissioner of Customs, Central Excise Service Tax, Coimbatore final order no. 41819-41832/2017 dated 29th August 2017 , to be unsustainable in law - the issue is no longer res integra and that demand pertaining to other financial services has been erroneously confirmed in the orders impugned. On the amounts retained by M/s Amsco Finance Ltd, which is sought to be taxed under cash management within section 65(12) of Finance Act, 1994, the definition comes into play for services rendered by banking company or a financial institution including a non-banking financial company or any other body corporate or commercial concern and the question that requires resolution is the nature of activity intended by cash management which has been invoked in the show cause notice for the period prior to 1st July 2012. Admittedly, the omission by specific exclusion of such activity, effected on 1st June 2007, is the sole description that could be fastened on the appellants for taxability as deemed provider of service. From the clarification in circular no. 96/7/2007-ST dated 23rd August 2007 of Central Board of Excise Customs, issued soon after the legislative change, it would appear that the intent was limited to chit funds thus negating the recourse to section 65(105)(zm) as taxable service for which appellants were liable till 30th June 2012. On the other hand, this may have the scope of inclusion within the taxable service as bill discounting for which exemption is afforded by notification no. 29/2004-ST dated 22nd September 2004 when provided to customers. As a customer of the provider of the service is not, under the notification, required to be an account holder, the benefit of such exemption is not deniable to the appellants. Thus, while consideration is passed from appellants to the overseas entity, it is the overseas customer who is, contractually, bound to repatriate value of exports to the appellant and, instead of doing so, authorises M/s Amsco Finance Ltd as delegate to effect that responsibility. It is not the contractual responsibility of the appellants to collect the dues and, therefore, by no stretch can it be held that the mediation of M/s Amsco Finance Ltd is a substitution for the task that would, otherwise, fall to the appellants. If at all, the Hong Kong entity is an intermediary within the meaning assigned in Place of Provision of Service Rules, 2012 to render the service, it has been performed in Hong Kong and, thus, not in the taxable territory. The demand for the period after 1st July 2012 also fails - the liability for allegedly having received services provided by M/s Amsco Finance Ltd also does not sustain. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Taxability of fees charged by M/s Amsco Finance Ltd for 'third party payments' for exports.
2. Applicability of 'banking and other financial services' under section 66A of the Finance Act, 1994.
3. Applicability of 'negative list' regime from 1st July 2012.
4. Penalties imposed under sections 77 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Taxability of Fees Charged by M/s Amsco Finance Ltd:
The primary issue revolves around the fee charged by M/s Amsco Finance Ltd for 'third party payments' for exports made by the appellants. The arrangement involved M/s C&A Buying, Germany, and M/s Amsco Finance Ltd, where the latter deducted a service fee of 3% from the invoice value. This fee was included in the computation of 'banking and other financial services' received from outside India, making the appellants liable for service tax as 'deemed provider' under section 66A of the Finance Act, 1994. The Tribunal found that this arrangement did not establish a contractual relationship with the appellants, and thus, the fees retained by M/s Amsco Finance Ltd could not be taxed under 'cash management' services.

2. Applicability of 'Banking and Other Financial Services':
The Tribunal examined whether the charges deducted by foreign banks fell under 'banking and other financial services' as defined in section 65(105)(zm) of the Finance Act, 1994. Referring to previous judgments, including Rogini Garments and Greenply Industries Ltd., the Tribunal concluded that the foreign banks' charges were not services provided to the appellants but were bank-to-bank transactions. The appellants did not have any formal or informal agreement with the foreign banks, and thus, the charges could not be considered as payment for services by the appellants to the foreign banks.

3. Applicability of 'Negative List' Regime from 1st July 2012:
For the period after 1st July 2012, the Tribunal scrutinized the nature of the activity under the 'negative list' regime. The adjudicating authority had not ascertained the nature of the activity in terms of 'consideration' received to determine the extent of service and the person 'for' whom such activity was provided by M/s Amsco Finance Ltd. The Tribunal found that the overseas customer was contractually bound to repatriate the value of exports and authorized M/s Amsco Finance Ltd to effect that responsibility. Thus, the mediation by M/s Amsco Finance Ltd was not a substitution for the task that would otherwise fall to the appellants. Consequently, the demand for the period after 1st July 2012 also failed.

4. Penalties Imposed Under Sections 77 and 78 of the Finance Act, 1994:
The Tribunal set aside the penalties imposed under sections 77 and 78 of the Finance Act, 1994, as the primary demands for service tax were found to be unsustainable.

Conclusion:
The Tribunal concluded that the demands for service tax on the amounts retained by M/s Amsco Finance Ltd and the charges deducted by foreign banks were erroneous. The orders impugned before the Tribunal were set aside, and the appeals were allowed. The judgment emphasized that the appellants were not liable for service tax under the circumstances described, and the penalties imposed were also not sustainable.