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2024 (10) TMI 568 - AT - Service TaxLevy of service tax - Automated Teller Machine ATM interchange fee (termed as commission) received by the State Bank of Hyderabad from SBI for deployment of ATMs owned by it in the shared network - notional consideration of the free ATM services provided by the State Bank of Hyderabad on its ATM to the other Associate Banks and SBI - invocation of extended period of limitation. Levy of service tax on Automated Teller Machine ATM interchange fee (termed as commission) received by the State Bank of Hyderabad from SBI for deployment of ATMs owned by it in the shared network - HELD THAT - It needs to be noted that neither the SBI nor the Associate Banks have raised any dispute and indeed the conduct of the parties does establish that there was an implied authority with SBI to discharge service tax liability of the Associate Banks. It is only when an enquiry was conducted by the department that the Associate Banks started discharging service tax on such interchange fees. Prior to that, SBI was discharging the service tax liability of the Associate Banks on the interchange fees. It also needs to be noted that even after the Associate Banks started separately paying service tax, the service tax liability of the SBG Banks remained the same. This demonstrates that the earlier arrangement that existed between the Associate Banks and SBI was merely for smooth settlement and did not have any service tax impact. Payment of service tax by SBI is not disputed. What is disputed is the payment of service tax by SBI as an agent of the Associated Banks. It has been found that there was an implied authority with SBI to discharge service tax liability of Associated Banks. Once service tax was paid by SBI as an agent of the Associate Banks, service tax cannot be demanded on the same transaction again from the Associate Banks. It further needs to be noted that while the show cause notice proposed demand of service tax on interchange fees received on the ground that interchange fee is commission from SBI for deployment of ATMs owned by Associate Banks in shared network, but the adjudicating authority has held that interchange fees is not a consideration for deployment of ATM, but is a consideration for the services provided to non-SBG Banks. The demand of service tax on the ATM interchange fee (termed as commission) received by the Associate Banks from the SBI for deployment of ATMs owned by the Associate Banks in the shared network could not have been confirmed - demand set aside. Levy of service tax on notional consideration of the free ATM services provided by the State Bank of Hyderabad on its ATM to the other Associate Banks and SBI - HELD THAT - The SBG Switch was set up much prior to the levy of service tax on ATM services in 2006. At the time of setting up of the SBG ATM Switch it was a common understanding that none of the constituents of the SBG Banks would charge any fee on transactions between them. There is nothing on the record which may indicate that any change has taken place in the manner of operation of the SBG ATM Switch. The SBG Banks did not charge interchange fees for transactions. This can be said to be a condition of contract for the setting up of the co-owned ATM Switch and cannot be considered as a consideration. In COMMISSIONER OF CGST CENTRAL EXCISE MUMBAI EAST VERSUS EDELWEISS FINANCIAL SERVICES LTD 2022 (2) TMI 1359 - CESTAT MUMBAI , the department contended that service tax would be leviable on corporate guarantee given for subsidiary company without any consideration. The demand cannot be sustained and is set aside. Invocation of Extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act - HELD THAT - It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within eighteen months from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay amount specified in the notice - The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word eighteen months , the word five years has been substituted. In PUSHPAM PHARMACEUTICALS COMPANY VERSUS COLLECTOR OF C. EX., BOMBAY 1995 (3) TMI 100 - SUPREME COURT , the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since suppression of facts has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. It is, therefore, clear that even when an assessee has suppressed facts, the extended period of limitation can be invoked only when suppression is shown to be wilful with intent to evade the payment of service tax. In the present case, there is, therefore, no suppression of material facts from the department, much less with an intent to evade payment of service tax. Post the enquiry by the DGGI in 2013, the Associate Banks started separately discharging service tax liability and it is stated that even with the changed methodology the service tax liability of SBG Banks remained the same. Thus, the earlier arrangement did not have any service tax impact. There is, therefore, no reason to doubt the contention of the Associate Banks that they were under a bonafide belief that the liability to pay service tax was being discharged by SBI as their agent. The extended period of limitation contemplated under the proviso to section 73(1) Finance Act, therefore, was correctly invoked in the facts and circumstances of the case. The finding recorded by the Commissioner on the invocation of the extended period of limitation, therefore, does not suffer from any infirmity. The five appeals filed by State Bank of India deserve to be allowed and are allowed.
Issues Involved:
1. Demand of service tax on ATM interchange fee received by Associate Banks from SBI. 2. Demand of service tax on notional consideration for free ATM services provided among SBG Banks. 3. Invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act. 4. Imposition of penalties under sections 75, 76, and 78 of the Finance Act. Issue-Wise Detailed Analysis: 1. Demand of Service Tax on ATM Interchange Fee: The primary issue was whether the adjudicating authority was justified in confirming the demand of service tax on the ATM interchange fee received by the Associate Banks from SBI for deployment of ATMs in the shared network. The Associate Banks contended that SBI was acting as their agent in discharging the service tax liability on interchange fees. Although there was no formal written agreement, the conduct of the parties indicated an implied authority for SBI to act as an agent. The adjudicating authority partially accepted this contention, acknowledging that SBI was acting as an agent concerning the settlement of amounts, but not for the payment of service tax. The Tribunal found that the discharge of service tax liability by SBI as an agent should be considered sufficient, and service tax cannot be demanded again from the Associate Banks. The Supreme Court's decision in Commissioner of GST and Central Excise vs. M/s. City Bank N.A. was cited, emphasizing that if the acquiring bank has discharged service tax on the entire amount, the issuing bank should not be required to pay service tax again. 2. Demand of Service Tax on Notional Consideration for Free ATM Services: The second issue concerned the demand of service tax on a notional basis for free ATM services provided among SBG Banks. The adjudicating authority assumed a barter or reciprocal arrangement among the banks, which was not supported by evidence. The Tribunal noted that the arrangement could not be strictly called reciprocal or barter, as the ownership of ATMs was disproportionately skewed towards SBI, which owned 84% of the ATMs. There was no direct or indirect consideration flowing to the Associate Banks for these services. The Tribunal referred to the decision in State Bank of Bikaner & Jaipur vs. Commr. of C. Ex. & S. T., Alwar, emphasizing that service tax is chargeable on the transaction value, which must involve consideration. The Tribunal concluded that the demand for service tax on notional consideration was unfounded. 3. Invocation of the Extended Period of Limitation: The department's appeal challenged the adjudicating authority's decision to drop the demand for the extended period of limitation. The adjudicating authority found that the Associate Banks had regularly filed service tax returns and that their records had been audited without objection from the department. The Tribunal upheld this decision, citing the Supreme Court's judgments in Pushpam Pharmaceuticals Co. vs. Collector of Central Excise and Anand Nishikawa Co. Ltd. vs. Commissioner of Central Excise, which require deliberate suppression of facts with intent to evade duty for the extended period to apply. The Tribunal found no evidence of such intent, noting that the Associate Banks acted under a bona fide belief that SBI was discharging their service tax liability as an agent. 4. Imposition of Penalties: The adjudicating authority imposed penalties under sections 75 and 76 of the Finance Act but dropped penalties under section 78. The department appealed against the dropping of penalties under section 78. The Tribunal found that there was no willful suppression or intent to evade service tax, and thus, the imposition of penalties under section 78 was not justified. The Tribunal upheld the adjudicating authority's decision to drop these penalties. Conclusion: The Tribunal allowed the appeals filed by State Bank of India, dismissing the department's appeals and cross-objections. The Tribunal found that the service tax demands were not sustainable on both the ATM interchange fee and the notional consideration for free services. It also upheld the adjudicating authority's decision to not invoke the extended period of limitation and to drop penalties under section 78 of the Finance Act.
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