2016 (2) TMI 848 - AT - Service Tax

Demand of service tax on Currency Conversion Charges (mark up of 3%) in respect of under Credit Card and Debit Card services - Scope of Banking and Financial Services Territorial jurisdiction - payment in relation to foreign transactions - Held that - the mark up charges accruing to the appellant when card holder uses card to pay in foreign exchange abroad is not liable to service tax under Credit Card Services during the impugned period. This conclusion is based both on merit of scope of Credit Card Services during relevant period and lack of territorial jurisdiction of charge. the mark-up on foreign currency transaction in case of a credit card is part of the cost of goods / services purchased by the card holder and is not a consideration for extending credit facilities. - The mark up charges accruing to the issuing bank when card holder uses credit card to pay in foreign exchange abroad is not liable to service tax under credit card services (under Banking & Other Financial Services) during the relevant period. Since we have already held in respect of credit card services, the mark-up charges is not liable to service tax under credit card services -section 65 (12) (ii), the same is applicable to the mark-up charges accruing to the issuing bank in respect of debit card charges. - Demand set aside - Decided in favor of assessee.

Issues Involved:
1. Taxability of markup/currency conversion charges under Banking and Other Financial Services (BOFS) for credit and debit card services.
2. Classification of services under different categories.
3. Territorial jurisdiction and the applicability of service tax on services rendered and consumed outside India.
4. Limitation period for raising the demand.
5. Imposition of penalties under Section 78 of the Finance Act.

Detailed Analysis:

1. Taxability of Markup/Currency Conversion Charges:
The primary issue was whether the markup/currency conversion charges in foreign currency transactions, using either a credit or debit card, fall under the category of "Banking and Other Financial Services" (BOFS). The appellant argued that the 3% markup is part of the cost of goods/services purchased in foreign currency and not for providing any service. The Tribunal referenced the case of SBI Cards and Payment Services Ltd. vs CST New Delhi, which concluded that markup charges attributable to currency conversion do not fall under 'Credit Card Services' during the impugned period. The Tribunal held that the markup on foreign currency transactions is part of the cost of goods/services purchased by the cardholder and not a consideration for extending credit facilities.

2. Classification of Services:
The appellant contended that the nature of activity towards credit card or debit card is the same. The department demanded service tax under "Credit Card Services" for credit cards and under "BOFS" for debit cards. The Tribunal found that the department could not take two different stands to classify the same activity under two different services. The adjudicating authority's demand of service tax under different categories for identical activities was not justified.

3. Territorial Jurisdiction and Applicability of Service Tax:
The appellant argued that services rendered outside India are not taxable. The Tribunal referred to the case of Cox & Kings India Ltd. vs CST, which held that services rendered and consumed outside India are beyond the taxable territory as per the Finance Act, 1994. The Tribunal concluded that the service, namely the facility of using the card for payment, was rendered and consumed outside India, and thus, service tax liability on such services is not sustainable.

4. Limitation Period for Raising the Demand:
The appellant argued that the demand was hit by limitation as there was no suppression of information with intent to evade payment of service tax. The Tribunal noted that the appellant had provided detailed information in response to the department's query in 2003. The Tribunal found no suppression of facts and thus, the extended period for raising the demand was not applicable.

5. Imposition of Penalties under Section 78:
Since the demand for service tax was set aside, the question of penalty under Section 78 did not arise. The Tribunal set aside the penalty imposed under Section 78.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal with consequential benefits. The markup charges accruing to the issuing bank when the cardholder uses a credit or debit card to pay in foreign exchange abroad were not liable to service tax under 'Credit Card Services' or 'Operation of Bank Accounts' during the relevant period. The Tribunal also set aside the penalty imposed under Section 78.

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