2011 (6) TMI 442 - AT - Service Tax

Service tax on the profit earned on Foreign Exchange - Revenue contented that any amount received in dealing Foreign Exchange shall be subject matter of tax under Finance Act 1994 that being a receipt from banking and other financial services - Held that - There is no intention of legislature to tax the profit earned out of dealing in foreign exchange. What that is necessity of Finance Act 1994 is that the gross value received providing taxable service is intended to be taxed under that law. Finding no scope to bring profit to the ambit of tax under Finance Act 1994 - Decided in favor of assessee.

Summary

Issues:
- Interpretation of the provisions of the Finance Act, 1994 regarding service tax on profit earned from Foreign Exchange deals.

Analysis:
The judgment by the Appellate Tribunal CESTAT, DELHI involved the interpretation of the provisions of the Finance Act, 1994 concerning the liability of service tax on the profit earned from Foreign Exchange deals. The Tribunal initially observed during an interim order that service tax on such profits may not be exigible under the Act. The Tribunal noted the provisions applied by the Appellate Authority and concluded that the Appellant-banker may not be liable to service tax on the profit from Foreign Exchange deals based on the sections 65(105)(zm) and 65(105)(zzk) of the Act.

Upon further examination during the hearing, the Tribunal found no improvement in the Revenue's argument to demonstrate that the Finance Act, 1994 intended to tax profits from dealing in foreign exchange. The Appellant reiterated their stance that the law did not permit taxing such profits under the Service Tax law. The Tribunal considered the arguments and the circular quoted by the Appellant, which supported their case. The Appellant contended that since the law did not allow taxing such profits and the circular applied, they should succeed in the Appeal.

The Revenue, represented by the Learned DR, argued that any amount received from dealing in Foreign Exchange should be subject to tax under the Finance Act, 1994 as it falls under banking and financial services. However, after a thorough examination of the taxable entry and the definition of banking and financial services, the Tribunal did not find any legislative intention to tax the profit earned from dealing in foreign exchange. The Tribunal emphasized that the Finance Act, 1994 aimed to tax the gross value received for providing taxable services, and there was no scope to bring profits from such deals under the ambit of taxation under the Act. Consequently, the Appeal was allowed by the Tribunal.

This judgment highlights the importance of interpreting statutory provisions accurately and determining the legislative intent behind taxation laws to decide on the liability of service tax on specific transactions, such as profits earned from Foreign Exchange deals. The Tribunal's analysis focused on the specific provisions of the Finance Act, 1994 and the scope of taxable services to conclude that such profits were not intended to be taxed under the Act.