2009 (7) TMI 579 - HC - Service Tax

Business Auxiliary services- The assessee- bank was engaged in collection of telephone bills for various telephone companies and remittance of same to them. The lower authorities took the view that service provided by assesese would attract service tax under category of the Business Auxiliary Services . However, the tribunal held that services provided by the assessee were not business auxiliary service. held that- the finding of the Tribunal that the service rendered by the bank was not to a business auxiliary service, did not appear to be correct. On the other hand, the argument of the assessee that the service essentially fall under cash management service under clause 12 of section 65 appeared to be correct. Therefore, these appeals were dismissed by upholding the order of the Tribunal canceling the assessment on the assessee for the service rendered by it until 31.5.2007.

Summary

Issues:
Whether the collection of telephone bills by the respondent bank for various companies constitutes business auxiliary service attracting liability for service tax under section 65(19) of the Finance Act 1994?

Analysis:
The primary issue in this case revolves around determining whether the collection of telephone bills by the respondent bank for companies like BSNL and Airtel qualifies as a business auxiliary service attracting service tax liability under section 65(19) of the Finance Act 1994. The department argued that the service falls under clause (19) of section 65, which includes customer care services like billing and collection of cheques. On the other hand, the respondent contended that bill collection is a cash management service excluded from the definition of banking and financial services under clause (12) of section 65. The Tribunal initially held that the service was not a business auxiliary service, prompting an appeal by the department. However, the court found merit in the respondent's argument that bill collection is a form of cash management service, especially after the exclusion of cash management from clause (12) was removed with effect from 1-6-2007.

The court examined the nature of the service provided by the respondent, which involved collecting bill payments from customers of companies like BSNL and Airtel and remitting the amounts to the respective companies. The bank charged a commission for this service, subject to service tax. The court noted that the service of collecting receivables, including bill payments, falls under cash management services provided by banking companies. The court referenced a clarification letter from the Central Board of Excise and Customs that highlighted the inclusion of bill collection in cash management services, which were previously excluded from the scope of service tax until the amendment in 2007.

The court delved into the definitions of banking and financial services under clause (12) and business auxiliary services under clause (19)(vii) of section 65. While the revenue contended that the service fell under business auxiliary services, the court opined that cash management services could also be considered a form of business auxiliary service. However, the court emphasized that since cash management services were excluded from service tax until 2007, the authorities could not levy tax on such services under a different charging head, including business auxiliary services. Consequently, the court upheld the Tribunal's decision to cancel the assessments on the respondent for services rendered until 31-5-2007, acknowledging that the same service was later taxed under the category of Cash Management Service from 1-6-2007 onwards.

In conclusion, the court dismissed the appeals and affirmed the Tribunal's orders, clarifying that banking and financial services, including cash management services like bill collection, were adequately covered under clause (12) of section 65, precluding the imposition of service tax under other heads like business auxiliary services.