2016 (11) TMI 22 - AT - Service Tax

Levy of tax - activities of cash management - Business Auxiliary Service - Section 65(19) of the Finance Act, 1994 - demand of interest u/s 75 and imposition of penalties - The Banking and Other Financial Services (BOFS) was included in the statute w.e.f 16.7.2001 under Section 65(12), however, the definition as it was initially introduced specifically excluded cash management services. The definition of scope of BOFS was further amended w.e.f 1.6.2007 when cash management service was specifically included under Clause (v). It is also on record that from 1.6.2007, the appellant has been discharging service tax liabilities under BOFS. Revenue authorities have taken a view that for the period prior to 1.6.2007 such services would be covered by BAS - whether the Revenue s view justified? Held that - The deletion of the exclusion of cash management services is w.e.f 1.6.2007. The issue whether for the period prior to this date, such services can be charged to service tax under BAS stands decided by the Hon ble Apex Court in the case of CST vs. M/s. Federal Bank Limited 2016 (3) TMI 354 - SUPREME COURT where it was held that Clause (12) of Section 65 covers all charging services rendered by the Banks. - when cash management services stood excluded from the purview of service tax at the hands of the Bank until 31.05.2007, the authorities cannot levy service tax on an activity which is essentially cash management service, by taking aid of other general charging heads, such as business auxiliary service. Service tax not levied - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether service tax is payable on cash management services provided by a bank under Business Auxiliary Service (BAS) category for the period prior to 1.6.2007?
2. Whether the decision of the Hon'ble Supreme Court in the case of CST vs. M/s. Federal Bank Limited supports the appellant's contention?

Analysis:

Issue 1:
The appeal was filed against an order imposing service tax on cash management services provided by a bank for the period 1.7.2003 to 30.9.2005 under the BAS category. The appellant contended that prior to 1.6.2007, cash management services were not included in the definition of services under Banking and Other Financial Services (BOFS) as per Section 65(12) of the Finance Act, 1994. The Revenue authorities argued that for the period before 1.6.2007, such services would fall under BAS. The Hon'ble Supreme Court's decision in the case of M/s. Federal Bank Ltd. clarified that cash management services were excluded from service tax until 31-5-2007. The Court held that when an activity is excluded from service tax until a specific date, authorities cannot levy service tax on it using general charging heads like BAS. The Court also referred to Section 65A of the Act regarding classification of taxable services to support this view. Consequently, the Tribunal followed the apex court's decision and set aside the impugned order, allowing the appeal.

Issue 2:
The appellant relied on the decision of the Hon'ble Supreme Court in the case of CST vs. M/s. Federal Bank Limited to support their contention that cash management services were not liable for service tax before 1.6.2007. The Revenue authorities agreed that the issue was decided in favor of the appellants by the Supreme Court. The apex court's decision highlighted the exclusion of cash management services from service tax until 1-6-2007 and emphasized that such services cannot be taxed under BAS for the period prior to the inclusion of cash management services in the definition of BOFS. The Tribunal, considering the Supreme Court's decision and statutory provisions, upheld the appellant's argument and allowed the appeal, setting aside the order imposing service tax on cash management services provided by the bank.

In conclusion, the Tribunal's decision was based on the interpretation of statutory provisions, the Hon'ble Supreme Court's ruling, and the classification of taxable services under the Finance Act, 1994. The judgment clarified that cash management services provided by a bank were not liable for service tax under BAS for the period before 1.6.2007, in line with the specific exclusion of such services from the definition of BOFS until that date.