2016 (1) TMI 974 - AT - Service Tax

Classification of Import of services from M/s. Society for Worldwide Interbank Financial Telecommunication (SWIFT) which is a non-resident entity, not having an office in India - reverse charge - service involved is transfer of information and also includes data processing - Banking and Other Financial Services or not - Held that - We find that the very same issue has been decided by this Tribunal in the case of Bank of Baroda vs. Commissioner of Service Tax, Mumbai 2016 (1) TMI 767 - CESTAT MUMBAI - the Assessees these appeals are partly allowed

Summary

Issues Involved:
1. Classification of services received by UBI from SWIFT under "Banking and Other Financial Services."
2. Liability of UBI to pay service tax on services received from SWIFT.
3. Applicability of service tax for the period before and after 18/4/2006.
4. Principle of mutuality in the transaction between UBI and SWIFT.
5. Revenue neutrality and the applicability of Cenvat Credit.
6. Limitation period for raising the demand of service tax.

Issue-wise Detailed Analysis:

1. Classification of Services:
The core issue was whether the services received by UBI from SWIFT fell under the category of "Banking and Other Financial Services" as defined under Section 65 (12) of the Finance Act, 1994. The Tribunal examined the definition, which includes "provision and transfer of information and data processing." It was determined that the services provided by SWIFT involved the transfer of information and data processing, as messages sent through SWIFT were encrypted, decrypted, and re-encrypted, indicating data processing.

2. Liability to Pay Service Tax:
The Tribunal affirmed that UBI, as the recipient of the taxable service in India, was liable to discharge the service tax under Rule 2(1)(d)(iv) of the Service Tax Rules, 1994, and Section 66A of the Finance Act, 1994. The Tribunal rejected the argument that SWIFT did not fall under the category of "banking and other financial institutions," emphasizing that the service's nature, not the provider's status, determined taxability.

3. Applicability of Service Tax for Different Periods:
The Tribunal referred to the Indian Ship Owners Association case, concluding that service tax was not payable before 18/4/2006. Consequently, the demand for the period prior to this date was set aside. However, for the period from 18/4/2006 onwards, the demand for service tax was upheld.

4. Principle of Mutuality:
The Tribunal found that the relationship between UBI and SWIFT was not akin to that of a club or association and its members. The payments made by UBI to SWIFT were for specific services rather than subscription charges, thus the principle of mutuality did not apply. The Tribunal distinguished the present case from judgments where subscription charges were not taxable.

5. Revenue Neutrality and Cenvat Credit:
The Tribunal acknowledged that UBI could potentially claim Cenvat Credit for the service tax paid, provided the services were used for providing taxable services. However, it was not a case of complete revenue neutrality as UBI provided both taxable and exempted services.

6. Limitation Period:
The Tribunal addressed the issue of limitation, noting that the appellant had not disclosed the service charges paid to SWIFT to the department, constituting suppression of facts. Therefore, the extended period under the proviso to Section 73(1) was correctly invoked. However, penalties were waived under Section 80 due to the reasonable cause arising from the interpretation of the law.

Judgment:
1. The demand for the period prior to 18/4/2006 was set aside.
2. The demand of service tax from 18/4/2006 onwards, along with interest, was maintained.
3. Penalties were waived under Section 80 due to the interpretative nature of the issue.

Appeals Outcome:
1. Revenue's appeal regarding the period prior to 18/4/2006 was dismissed.
2. Revenue's appeal for the period after 18/4/2006 was partly allowed, reinstating the service tax demand but maintaining the waiver of penalties.
3. Assessee's appeals were partly allowed, maintaining the service tax demand but waiving penalties.

Order Pronounced:
The order was pronounced in court on 11/01/2016.