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TMI Blog2024 (10) TMI 568X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds to be noted that neither the SBI nor the Associate Banks have raised any dispute and indeed the conduct of the parties does establish that there was an implied authority with SBI to discharge service tax liability of the Associate Banks. It is only when an enquiry was conducted by the department that the Associate Banks started discharging service tax on such interchange fees. Prior to that, SBI was discharging the service tax liability of the Associate Banks on the interchange fees. It also needs to be noted that even after the Associate Banks started separately paying service tax, the service tax liability of the SBG Banks remained the same. This demonstrates that the earlier arrangement that existed between the Associate Banks and SBI was merely for smooth settlement and did not have any service tax impact. Payment of service tax by SBI is not disputed. What is disputed is the payment of service tax by SBI as an agent of the Associated Banks. It has been found that there was an implied authority with SBI to discharge service tax liability of Associated Banks. Once service tax was paid by SBI as an agent of the Associate Banks, service tax cannot be demanded on the same tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made there under with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word eighteen months , the word five years has been substituted. In PUSHPAM PHARMACEUTICALS COMPANY VERSUS COLLECTOR OF C. EX., BOMBAY [ 1995 (3) TMI 100 - SUPREME COURT] , the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since suppr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Finance Act. Cross Objection No. 50518 of 2019 has been filed by the department in Service Tax Appeal No. 50862 of 2019 filed by SBI. 2. The second set of five appeals have been filed by the department to assail that part of the order passed by the adjudicating authority that drops the demand of service tax for the extended period of limitation from October 2010 to September 2013 under the first proviso to section 73(1) of the Finance Act. The order also drops the penalty imposed under section 78 of the Finance Act. Four Cross objections have been filed by SBI in the four appeals filed by the department. 3. The five banks which merged with SBI on 01.04.2020 shall collectively be called as Associate Banks . The Associated Banks including SBI shall collectively be referred to as SBG Banks . 4. A summary of the demand raised in the five show cause notices, the demand dropped, the demand confirmed, and the demand raised in the five appeals are contained in the following four charts: A Demand as per show cause notices (October 2010 to March 2015) S. No. Name of Bank Date of show cause notice ST on services provided to SBI (in Rs.) ST on free services provided to other SBG Banks (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atiala ST/50860/2019 ST/54175/2018 ST/CROSS/50317/2019 20,59,78,946 77 and 78 3. State Bank of Mysore ST/50859/2019 ST/54176/2018 ST/CROSS/51340/2019 21,47,45,900 77 and 78 4. State Bank of Bikaner and Jaipur ST/50861/2019 ST/54178/2018 ST/CROSS/50490/2019 23,84,82,428 77 and 78 5. State Bank of Travancore ST/52326/2018 ST/54177/2018 ST/CROSS/50318/2019 20,97,32,966 77 and 78 1,30,54,77,61 9 5. As noticed above, five show cause notices had been issued to the five Associate Banks. The details of show cause notices along with the tax demanded, demand confirmed and the demand dropped are again tabulated below: S. No. Bank Show cause notice date Tax demanded (in Cr.) Demand confirmed (in Cr.) Demand dropped (in Cr.) 1. State Bank of Patiala 17.10.2015 29.82 9.22 20.60 2. State Bank of Hyderabad 06.01.2016 53.00 9.35 43.65 3. State Bank of Bikaner Jaipur 17.10.2015 33.74 9.89 23.84 4. State Bank of Mysore 17.10.2015 32.15 10.68 21.47 5. State Bank of Travancore 20.10.2015 31.06 10.09 20.97 6. The five appeals filed by SBI representing the erstwhile five Associate Banks are similar on facts. Both the learned chartered accountant appearing for SBI and the learned special counsel appearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Switch deployed for settlement of amounts with other Non-SBG banks is a common asset of SBI and other Associate Banks with 50% share of SBI and 10% share being held by each of the other five Associate Banks. xxxxxxxxx A 12. The next objection as mentioned under paragraph H of the Notcee s reply is regarding the fact as to who the Noticee has made its ATM available for use- whether the use is by the SBI or the Non-SBG banks/customers of Non-SBG banks who have actually transacted on the ATMs of the Noticee. A 12.1 . In this context, I agree with the contention of the Noticee that the ATM services have been provided by them to Non-SBG banks or to their customers. SBI has only been authorized on behalf of all other SBG banks to act as a settlement bank. The said services are completed using ATMs owned by SBH, the SBI Switch [jointly owned by SBI and other SBG banks], NPCI Switch, Switch of the issuing bank. Thus, the services are being provided by SBH (as acquiring bank) to Non-SBG bank (as issuing bank). Second issue B 1 . I find that Noticee is justifying the non-payment of service tax on Off-Us transactions transacted by the customers of other constituents of the SBG Banks on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of the case there remains no doubt that ATM services are provided by the SBH, is any customer of SBI or any of the rest of Associate Bank avails the ATM services of SBH. Similar is the situation if any customer of SBH avails the ATM services of SBI or any of the Associate Banks. I find that settlement of amounts also takes place between them but neither of them charges any transaction fee for the ATM services provided by them, I find that the Noticee has not offered any reasons [except for contending that some infrastructure cost were common] for charging and collecting any service charges or paying any service tax on the said transaction charges. 11. SBI has filed five appeals for quashing the demand confirmed for the normal period with penalty and interest, whereas the department has filed five appeals against the dropping of the demand proposed for the extended period as also dropping of the penalties proposed under sections 77 and 78 of the Finance Act. 12. The facts relevant for the purpose of the controversy involved are: (i) Each of the Associate Banks, which were set up by an Act of Parliament by converting the erstwhile banks of Princely States, had major presence in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Payments Corporation of India [NPCI] Switch for completion of ATM transaction. For such services, the bank owning the ATM charges a fee, known as interchange fees or acquiring fee , from the ATM card issuing bank. While transactions take place at the ATM, the back-end operations in respect of ATM transactions take place at the ATM Switch. Associate Banks are responsible for maintaining and operating their own ATM, even though the ATM Switch is common. ATM Switch performs back-end operations like transaction processing, transaction reconciliation, fund settlement and settlement of interchange fees; (ii) Like any other ATM Switch, SBG Switch also has a unique ID, which is mapped to SBI by NPCI. Accordingly, the NPCI, as a settlement agency for all non SBG Banks ATM transactions, recognizes the SBG Switch as pertaining to SBI. Thus, in respect of ATM transactions settled by SBI through SBG Switch as the settlement agency, the NPCI considers such transactions as that of SBI. Since SBG Switch had a single acquirer ID till 24.11.2014, the NPCI could not segregate the transactions settled through SBG Switch amongst the constituents of SBG Banks; (iii) Thus, in cases where customers of oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of alternate views, the NPCI agreed to recognise each of the Associate Banks transactions separately by allotting them separate BIN ID by treating SBI as BIN sponsor and accordingly with effect from 25.11.2014, the interchange fees receivable/payable to the Associate Banks was separately identified by NPCI, though it continues to be settled by the Associate Banks through SBI. Since the interchange fees is separately identified by NPCI, the Associate Banks discharged service tax liability on such interchange fees received after taking credit for the service tax paid on interchange fees paid by the Associate Banks. Even with the changed methodology, the aggregate service tax liability of the SBG Banks remained the same. According to the appellant this proves that the earlier arrangement was merely for smooth settlement and did not have any service tax impact. 14. Shri Sanjay Khemani, learned chartered accountant assisted by Ms. Nisha Agarwal, Assistant General Manager of SBI made the following submissions with respect to the two issues: First issue (i) Though there is no written agreement between Associate Banks and SBI for appointing SBI as an agent, but the actions of SBI and Assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the ATMs are known as State Bank ATM . Associate Banks do not charge any fee from each other if a customer of one Associate Bank transacted at the ATM of another SBG Bank customer. The demand of service tax has been confirmed on transactions transacted by the customers of SBG Banks on each other s ATMs on the ground that service tax is payable, where non-monetary consideration including the understanding to provide certain services free of cost on reciprocal basis is involved. Allegation of non-payment of tax is based on assumption of barter/reciprocal arrangement; (ii) SBI owned 84% of the total number of ATMs and other constituents of SBG Banks owned between 3% to 4% each. It proves that it was not a barter/reciprocal arrangement, as in a barter/reciprocal arrangement, each party to the arrangement derives same or almost similar amount of benefit from the contract, which is presently not the case; (iii) Associate Banks and SBI are co-owners of the SBG ATM Switch. SBG ATM Switch was set up much prior to levy of service tax on ATM services in 2006. While setting up the SBG ATM Switch, it was a mutual understanding that none of the constituents would charge any fee for transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BI and other SBG banks will not make any difference as the SBI had taken a separate service tax registration for the Switch. The Associate Banks had their own separate service tax registrations. SBI and the Associate Banks are filing their respective ST-3 returns. Therefore, their service tax liabilities will also be different and independent of each other; (vi) The adjudicating authority was not justified in dropping the demand for the extended period of limitation as the facts on record clearly establish the invocation of the extended period of limitation under the proviso to section 73(1) of the Finance Act; (vii) The adjudicating authority was not justified in dropping the penalty proposed under section 78 of the Finance Act; and (viii) The adjudicating authority was justified in imposing penalties under sections 75 and 76 of the Finance Act. 16. The submissions advanced by the learned chartered accountant for the appellant and the learned special counsel appearing for the department have been considered. First Issue 17. As noticed above, two main issues were decided. The first is as to whether the adjudicating authority was justified in confirming the demand of service tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever disputed the arrangement and the Associate Banks were subsidiaries of SBI, the same was not formalized. Since the SBG Switch was separately registered with service tax authorities and service tax was claimed to have been paid by SBI as their agent, the Associate Banks claim that they were under a bona-fide belief that the same was not required to be registered again in their own name in proportion of their share. On the same ground, the Associate Banks also claim that they were under a bona-fide belief that since SBI had been discharging service tax liability as their agent, the question of again paying service tax on an amount net of service tax received from SBI did not arise. This arrangement was followed since the inception of the SBG Switch i.e. for more than 10 years prior to show cause notice period. Post the enquiry, NPCI agreed to recognise each of the Associate Banks transactions separately by allotting them separate BIN ID by treating SBI as BIN sponsor and accordingly with effect from 25.11.2014, the interchange fees receivable/payable to the Associate Banks was separately identified by NPCI, though it continues to be settled by the Associate Banks through SBI. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly correct, as explained above, in so far as settlement of amounts for such transactions is concerned. The Noticee have nowhere shown anything to prove that SBI was authorized to act on their behalf as far as payment of service tax by the Associate Banks [as service provider] is concerned. I had made discussions in this regard in later part of this order. (emphasis supplied) 24. The Associate Banks had submitted various documents including a certificate of a chartered accountant that SBI had paid service tax on the services provided by the Associate Banks. The adjudicating authority has merely observed that none of the documents justified the payment of service tax by SBI as an agent of the Associate Banks. In this connection it would be appropriate to reproduce paragraph A.23.8 of the order and it is reproduced below: A.23.8 I have carefully considered the above stated documents as mentioned under (a) to (f) above and find that none of the documents justify the payment of service tax by SBI acting as an agent of the Noticee . Further, no documents submitted by either the Noticee or by SBI informs the department that service tax liability of the Noticee pertaining to the ATM servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uents banks of the SBG Banks to each other. 30. The SBG Switch is a common Switch co-owned by all the SBG Banks, though the capital expenditure and operating expenses relating to SBG Switch were shared amongst each of the SBG Banks in proportion of their ownership interest in SBG Switch. So far as the customers are concerned all ATMs were known as State Bank ATM . The Associate Banks did not charge fee from another constituent of the SBG Bank if the customer of one Associate Bank transacted on an ATM of another SBG Bank. The demand of service tax has been confirmed on transactions by the customers of SBG Banks on the ATMs of other SBG banks on the ground that service tax is payable, where non monetary consideration, including the understanding to provide certain services free of cost on reciprocal basis. 31. Thus, non-payment of service tax is based on the assumption of Barter/Reciprocal arrangement. The finding recorded by the adjudicating authority on this aspect is reproduced below: B.1.8 On going through the above contentions, I am of the view that in fact no reply was given by the officers of SBH on the said question regarding providing ATM services on reciprocal basis without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of SBG Banks owned between 3 to 4%. As seen above, in Reciprocal Arrangement/ Barter each party to the arrangement derives the same or almost similar benefit from the contract. In fact, the adjudicating authority itself in paragraph 40 has recorded the following findings: In this context, I agree with the Noticee that this arrangement between the SBI and the Associate Banks could not be strictly called as barter arrangements or on reciprocal basis. 34. Service tax would be leviable on the transaction value which would be the consideration for the service provided. There is no direct or indirect consideration either in monetary or non-monetary form flowing to the Associate Banks from the SBG Banks. In this connection reference can be made to the decision of the Tribunal in State Bank of Bikaner Jaipur vs. Commr. of C. Ex. S. T., Alwar [ 2021 (45) G.S.T.L. 293 (Tri.- ]. After referring to the provisions of section 67 of the Finance Act, the Tribunal observed: 36. It is, thus, clear that where service tax is chargeable on any taxable service with reference to its value, then such value shall be determined in the manner provided for in (i), (ii) or (iii) of sub-section (1) of section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable under the Act. By using the words for such service provided the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67 . The cost of free supply goods provided by the service recipient to the service provider is neither an amount charged by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined. (emphasis supplied) 39. The aforesaid view was reiterated by the Supreme Court in Union of India vs. Intercontinental Consultants and Technocrafts [ 2018 (10) GSTL 401 (SC) ] and it was observed: 23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the value of taxable services . Thus, service tax is reference to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at would not necessarily mean that this value would form part of the value of taxable services that are provided. (emphasis supplied) 35. What further needs to be noticed is that the SBG Switch was set up much prior to the levy of service tax on ATM services in 2006. At the time of setting up of the SBG ATM Switch it was a common understanding that none of the constituents of the SBG Banks would charge any fee on transactions between them. There is nothing on the record which may indicate that any change has taken place in the manner of operation of the SBG ATM Switch. The SBG Banks did not charge interchange fees for transactions. This can be said to be a condition of contract for the setting up of the co-owned ATM Switch and cannot be considered as a consideration. 36. In Commissioner of CGST Central Excise, Mumbai East vs. Edelweiss Financial Services Ltd [ (2023) 5 Centax 57 (Tri.-Bom)], the department contended that service tax would be leviable on corporate guarantee given for subsidiary company without any consideration. This contention was not accepted by the Tribunal and it was observed: 8. . Any activity must, for the purpose of taxability under Finance Act, 1994, not onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he records of the Associate Banks and ATM Switch Centre had been audited by the department without raising any objection. In such circumstances, the adjudicating authority held that though the department was fully aware of the factual position, yet the show cause notice was not issued within the stipulated time. The relevant findings recorded on this issue by the adjudicating authority are reproduced below: C.5 . I have carefully gone through the provisions of Section 73 as stated above and the facts of the case. I find that the Noticee is a Public Sector Bank engaged in providing banking and other services including services related to ATM/Debit cards and other payment/charge, cards. I find that the Noticee is registered as a Service Tax assessee with the Department and holds Service Tax registration No. AADCS4009HST001 for providing Banking and other Financial services etc. I find that the Noticee along with other members of SBG banks [Associate banks and SBI] jointly holds a Switch Centre which is functioning from State Bank Global IT Centre, Sector-11, CBD Belapur, Navi Mumbai. The said Switch centre by name of SBI Switch Centre had been settling the ATM transactions of SBG Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, had regularly being audited by the Service Tax Department, where no such objection has ever been raised, I am of the view that extended period of limitation in the case cannot be applied in the case. (emphasis supplied) 40. In order to appreciate whether the extended period of limitation was correctly invoked, it would be appropriate to reproduce section 73 of the Finance Act as it stood at the relevant time. This section deals with recovery of service tax not levied or paid or short levied or short paid or erroneously refunded. It is as follows; 73.(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within eighteen months from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice: PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of- (a) fraud; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since suppression of facts has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows; 4. Section 11A empowers the Department to re-open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts . The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act. (emphasis supplied) 46. These two decisions in Pushpam Pharmaceuticals and Anand Nishikawa Company Ltd. were followed by the Supreme Court in the subsequent decision in Uniworth Textile Limited vs. Commissioner of Central Excise, Raipur [ 2013 (288) E.L.T. 161 (SC)] and the observation are: 18. We are in complete agreement with the principal enunciated in the above decisions, in light of the proviso to section 11A of the Central Excise Act, 1944. 47. The Supreme Court in Continental Foundation Joint Venture Holding vs. Commissioner of Central Excise, Chandigarh-I [ 2007 (216) E.L.T. 177 (SC)] also held: 10. The expression suppression has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or collusion and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any positive act on the part of the appellant. 51. As noticed above, since the SBG Switch was registered with the service tax authorities in the name of SBI and service tax is claimed to have been paid by SBI as agent of the Associate Banks, the Associate Banks claim that they were under a bona-fide belief that the SBG Switch was not required to be registered again in their own name in proportion of their share. On the same ground, the Associate Banks also claim that they were under a bona-fide belief that since SBI had been discharging service tax liability as their agent, the question of again paying service tax did not arise. The service tax returns were filed regularly in which all the required disclosures had been made. An audit of the records had also been conducted in 2011 for the period 2006-07 to 2008-09. The service tax and financial records were also audited by the department for the period covering from April 2011 to March 2015. No objection was ever raised by the department in these two audits regarding non-payment of service tax on the two ATM transactions referred to in the show cause notice. There is, therefore, no suppression of material facts from the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s own judgment and in a bona fide manner. 24. The extent of disclosure that an assessee makes is also linked to his belief as to the requirements of law. xxxxxxxxxxx. On the question of disclosure of facts, as we have already noticed above the assessee had disclosed to the department its pricing policy by giving separate letters. It is also not disputed that the returns which were required to be filed were indeed filed. In these returns, as we noticed earlier there was no separate column for disclosing details of the deemed export clearances. Separate disclosures were required to be made only for exports under bond and not for deemed exports, which are a class of domestic clearances, entitled to certain benefits available otherwise on exports. There was therefore nothing wrong with the assessee s action of including the value of deemed exports within the value of domestic clearances. (emphasis supplied) 53. The extended period of limitation contemplated under the proviso to section 73(1) Finance Act, therefore, was correctly invoked in the facts and circumstances of the case. The finding recorded by the Commissioner on the invocation of the extended period of limitation, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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