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TMI Blog2018 (7) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... x) has been mentioned, we find that the allegation as well as activity of transfer of information and data processing which is rendered has been clearly mentioned in the SCN. Therefore, the mere mentioning of the sub-clause wrongly in our view would not make the SCN vitiated or invalid - argument of appellant fails - taking note of the fact that the demand has been made under reverse charge mechanism, we consider that the period prior to 18.04.2006 requires to be set aside - also, the penalty for the period after 18.04.2006 is unwarranted and requires to be set aside - thus, the demand for the period after 18.04.2006 is upheld whereas the penalty on this issue is set aside. Demand of service tax on Vostro transactions - case of appellant is that the service qualifies as export of service - Held that:- From the manner of operation and working of Vostro we are able to see that the appellant retains the charges for providing the service. The account is maintained in Indian Rupees, but the inward remittances are in foreign convertible currency received from the Bank located outside India; the appellant retains the charges in Indian currency out of the inward remittance received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on penalty imposed. The appellant has discharged service tax w.e.f. 18.04.2006 in respect of Nostro account even before issuance of SCN. He pleaded that the penalties in this regard may be set aside. b) In respect of demand on SWIFT charges, the Ld. Counsel explained that the Society for Worldwide Interbank Financial Telecommunication (SWIFT) operates a worldwide financial messages network which offers facility to exchange authenticated structured messages between member banks. Banks can exchange authenticated messages with any member of SWIFT with whom it has Relationship Management Application (RMA), For establishing RMA, SWIFT charges a nominal fee. SWIFT, is being used to transfer financial messages in secure way. SWIFT cannot be used for transfer of funds and is used only for exchanging messages amongst the banks. Each member bank has to pay annual user registration fee, connectivity fee, annual interface license fee, etc. Apart from the annual charges banks need to pay the monthly traffic charges to SWIFT, which actually depends upon the number of outgoing messages and the types of messages sent by them during the particular months There are no charges for incoming mess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... National Shipowner's Association Vs. UOI 2009 (13) STR 235 would be applicable and therefore the demand prior to 18.04.2006 cannot sustain. He pleaded that the penalty on this count may be set aside since the issue was a contentious one. d) With regard to demand on Vostro transactions, the Ld. Counsel explained that Vostro account is maintained by various banks for exchange house with the domestic bank that allows the foreign bank to make payments in local currency ie. Rupees. Under these accounts, the foreign banks offer their accounts maintained with the appellant in a convertible foreign exchange as the appellant pays their beneficiaries in Indian rupees. Prior approval of RBI is required for opening and maintaining rupees/foreign currency Vostro account on non-recipient banks/exchange houses. The operations and maintenance of Vostro accounts and the transactions there under can be carried on only by authorized person under FEMA. Thus, the transaction is one of dealing in foreign exchange or foreign securities. He explained the flow of work in these transactions to be as under:- i) The Foreign Exchange house is engaged in the electronic transfer of Indian Rupee funds t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of such services. In the present case, the foreign exchange houses are located outside India and therefore the condition is satisfied. Thus there is no requirement to go to Rule 3 (2) of the said Rules which satisfies the condition that the amount should be received in foreign exchange. That, the Commissioner has erred in denying the benefit for export services for the mere reason that Vostro account is maintained in Indian currency and outward remittances are only in Indian Currency from this account, and therefore the condition that receipt of consideration should be in foreign currency as per Rule 3 (2) is not fulfilled f) Without prejudice to the above arguments, the ld. Counsel submitted that in instant case, the condition of receipt of consideration in foreign currency has also been fulfilled. Further, as per the instructions contained in RBI Memo/Circular, the Vostro account should be funded by sale of permitted foreign currency to the authorized dealer category (1) bank. It also prohibits Rupees fund transfer from another ADC (1) or another Vostro account. In the circumstances, no demand can be made alleging that the account is maintained in Indian currency. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 18.04.2006 with interest. No sufficient grounds are put forward to set aside penalties. ii) As regards the transactions relating to charges paid to SWIFT, it is clear that the services have been rendered in India and not abroad. The main contention of the appellant is that the transactions with SWIFT will not fall within the classification of Banking and other Financial Services as SWIFT does not hold accounts for its members and does not perform any banking activity, Even if it is considered that SWIFT is used only for data exchange/ information, the said activity rendered by SWIFT would very well get covered under Clause (vii) of Banking and other Financial Services, which include activity of provision and transfer of information and data processing . The Commissioner has rightly held that the service would appropriately be covered under the sub-clause (vii). The argument of the appellant that in the SCN the specific sub-clause under 65 (12) has been wrongly mentioned as sub-clause (viii) and (ix) and therefore the SCN is invalid is not tenable for the reason that the allegation or activity which is taxable has been clearly mentioned in the SCN. Thus, the demand raised on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the issue whether assesse is liable to pay service tax under reverse charge mechanism was contentious for a long time, and was settled by the decision of Hon'ble Apex Court in Indian National Shipowners Association (supra), we hold that the penalty imposed in regard to Nostro transactions is unwarranted and requires to be set aside, which we hereby do. 5.3 With regard to the demand of service tax on SWIFT transactions, one of the grounds put forward by the appellant was that sub-clause of the category of service under Section 65 (12) namely, Banking and other Financial services has been wrongly mentioned in the SCNs In the SCN, sub-clause (viii) and (ix) has been invoked in regard to SWIFT Transactions. The Commissioner has discussed this point in para-15 of the impugned order. We find that the service rendered under SWIFT would very well get covered under sub-clause (vii) of the definition of Banking and other Financial services as provided under 65 (12). Though in the SCN, sub-clause (vii) and (ix) has been mentioned, we find that the allegation as well as activity of transfer of information and data processing which is rendered has been clearly mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as export of service if such service is provided from India and used outside India. Instances have come to notice that certain activities, illustrations of which are given below, are denied the benefit of export of services and refund of service tax under Rule 5 of the Cenvat Credit Rules, 2004 (Notification No. 5/2006-CE (NT) dated 14.03.2006) on the ground that these activities do not satisfy the condition 'used outside India' (iv) Foreign financial institution desiring transfer of remittances to India, engaging an Indian organization to dispatch such remittances to the receiver in India. For this, the foreign financial institution pays commission to the Indian organization in foreign exchange for the entire activity being undertaken in India. 5.6 Further, the Tribunal in the case of Paul Merchants (supra) has analysed the very same issue and held as under:- 75. As regards the question as to whether the amount paid by the agents to sub-agents are excludible from the value of taxable service provided by the agents, this question becomes irrelevant once it is decided that the services provided by the agents are export of service not taxable in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Export of Services Rules, 2005. Not doing so and leaving this question to be determined by individual tax payers or tax collectors for each service, based on their deductive ability would result only in total confusion and chaos. (iv) Money transfer service is being provided by the Western Union from abroad to their clients who approached their offices or the offices of their agents for remitting money from to friends/relatives in India. The service being provided by the agents and sub-agents is delivery of money to the intended beneficiaries of the customers of WU abroad and this service is business auxiliary service , being provided to Western Union. It is Western Union who is the recipient and consumer of this service provided by their agents and sub-agents, not the persons, receiving money in India. (v) The consumer of the service provided by the agents and subagents of WU in India is the Western Union, located abroad, who use this service for their money transfer business not the persons receiving money in India. Since the service provided is Business Auxiliary Service classifiable under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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