TMI Blog2011 (7) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... x justified. Extended period of limitation - The appellant although was registered with Service Tax Authorities from 18.07.2002, failed to prove its innocence nor could it establish that there was no suppression of fact disclosing in its return filed. - Extended period was rightly invoked by the SCN dated 31.10.2007 when the evasion came to notice of Revenue by investigation to make good of the loss to revenue. Bonafide of the appellant did not surface. Taxes due to exchequer remained unpaid. The appellant was liable for the contravention of law. Penal consequence of law has rightly followed. - 578/09 - ST316 of 2011 - Dated:- 26-7-2011 - Shri D. N. Panda, Shri Sahab Singh, JJ. Rep. by Shri R. Murlidharan, Authorised Representative for the appellant Rep. by Shri Amrish Jain, SDR for the respondent Per D. N. Panda : Factual matrix of the case The appellant came in appeal against the Order-in-Original dated 21.1.2009 giving rising to following consequences: (i) Service Tax of Rs.2,63,42,711.00 and Ed. Cess of Rs.4,13,431.00 aggregating Rs.2,67,56,142.00 was demanded in terms of provisions of Section 73 of the Finance Act, 1994 (hereinafter referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as section 65(12) of the Act. 3. Ld. Adjudicating authority in para 2 of the adjudication order indicated extent of enquiry and examination done at various stages to ascertain loss of Revenue and in para 4 of the order indicated how he was guided by the procedure followed in Banking Industry in providing credit card services . The said para reads as under :- 4. The procedure followed in banking industries in this context is summarized as under : (i) banks are engaged in providing credit card services to its customer by way of issuing credit card as the Issuing Bank. They enter into an agreement with merchant establishment (ME)/service establishment (SE) and they undertake sale of goods or services to the holders of credit card issued by bank. ME/SE generate bill of concerned card holder with the help of machine installed by the bank at the premises of ME/SE. Bill thus generated is given to the bank for payment whereupon the bank reimburses the amount less a certain percentage of discount which is retained by the bank. Sometimes the issuing bank does not provide the machines to the ME/SE which may be provided by another bank known as Acquiring bank under certain terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant s acquirer (Acquiring bank). (iii) Whenever a customer buys any item from these establishments using credit card, the customer gets the item without any immediate payment. Whenever a credit card holder wants to purchase goods/services from a merchant establishment, he produces the card to a merchant, instead of paying in cash. The card is then swiped in the swiping machine installed at the premises of such establishment. The moment the establishment swipes the credit card of the customer, online information is transmitted to the Acquiring bank/issuing bank, which then sends response to the establishment after verifying the authenticity of the card holder. Transaction takes place and charge slip is generated by swiping machine. Customer signs charge slip and merchant retains a copy of the same. Thereafter, ME submits copy of charge slip to acquiring bank. After completion of transaction, acquiring bank makes payment to the merchant for all the charge slips submitted by the merchant after deducting the Merchant fees/service charge/discount/commission at a pre-agreed rate varying from 2 to 5% of the transaction value, in consideration to the business generated on credit card a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank interchange fees as part of the daily settlement process of MasterCard. It was further explained that acquiring bank was required to pay interchange fee to the issuing bank (Appellant) as per master card guidelines. Statement recorded as above was reiterated by written submission of the bank (Appellant) on 18.05.07. 5.1. To adjudicate the matter, the adjudicating authority framed following three issues (Ref : Para 24 of the adjudication order) as under : (i) Whether, service Tax amounting to Rs.2,63,42,711.00 and Ed. Cess of Rs.4,13,431.00 is demandable from them under Section 68 and Section 73 (1) of Finance Act, 1994 after invoking extended period of limitation for the taxable services rendered by them in relation to credit card services under the category of Banking and Other Financial services for the period from 1.6.02 to 30.4.06 ; (ii) Whether Interest on above amount of service tax is demandable from them under Section 75 of Finance Act, 1994 ; (iii) Whether penalties under the provisions of Section 76, Section 77 and Section 78 of Finance Act, 1994 are imposable upon them. 5.2. All the three issues aforesaid were decided against the appellant. First ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by the appellant was as an acquiring bank . He explained that according to Section 65 (72)(zm) of the Act, any service provided to a customer by a banking company or a financial institution including a non-banking financial company in relation to banking and other financial services was taxed from 16.7.2001. The term banking and other financial services used in that Section at the relevant point of time was defined by section 65(10) and thereafter renumbered as section 65(12) included credit card services within its fold. But for the first time, enacting Finance Act, 2006, the term, credit card , debit card , charge card or other payment card services were defined by Section 65 (33a) of the Act w.e.f. 1.5.2006. So also credit card service which was appearing in Section 65(12) of the Act was omitted from that section by Section 68 of the Finance Act, 2006 and Section 65 (105)(zzzw) of the Act was enacted to tax services relating to such card facility. Accordingly, what does credit card mean was defined in Section 65 (33A) of the Act enacting Finance Act, 2006 and what is to be taxed in relation to credit card service w.e.f.1.5.2006 was done by Section 65 (105)(zzzw) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LT5(SC) and India Cement Ltd. Anr. 2011 VIL1 2SC. So also it was submitted that classification of service provided by the department in contravention of the instructions of Board is bad in law and adjudication order is liable to be set aside. 6.8. It was further submitted on behalf of the appellant that it gains support from the decision taken by the Bombay Commissionerate in terms of the Order-in-Original No.01/STC/SJS/07-08 dated 22.5.07 and by Chennai Commissionerate in terms of Order in Original No.29/2006 dated 21.11.2006 where similar service provided was not taxed. 6.9. It was further submitted on behalf of the appellant that the appellants did not fail in its duty to reply to the questions of the Department. It replied to the letter of the Superintendent received on 16.1.2006. Reply was also given on 17.2.2006 (available at page 125 to 128 of appeal folder) denying liability. So also the appellants replied to the show cause notice on 30th December, 2008 (available at page 88 to 101 of appeal folder). When the appellants correctly brought the facts and law to the notice of the authority explaining its method of working, did not suppress any material fact to the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t card service facilitates, cashless purchase of goods or availment of cashless services by a card holder from Merchant Establishments and payment thereof is made by card issuing bank . Card issuing bank either discharges payment to the Merchant Establishment directly or through an Acquiring Bank , and bill is issued by card issuing bank to the card holder for payment within a stipulated period according to the terms of issue of credit cards. The other modality of discharge of payment in respect of credit card transaction to Merchant Establishment is through an acquiring bank . Payment of less value against transaction made by card holder with Merchant Establishment earns discount which is shared by the acquiring bank and card issuing bank . 7.3. Ld. DR further submitted that consumers and banking industry in the economy know what is credit card service and coverage of such facility as well as manner of settlement of credit card transaction and discount earned and sharing thereof by card issuing bank and acquiring bank in terms of Master Card Policy. According to Ld. DR, the term defined by Section 65 (10) or Section 65 (12) of the Act as the case may be is an aid to interpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 2006, the credit card service was all along taxable. Mere segregation of a service from one clause to another does not make a new levy while definition section is not charging section but is an aid to interpretation. While old levy was enacted under taxing entry u/s 65(72)(zm) of the Act, the Appellant misconceived that credit card service became taxable from 01.05.2006. 7.6. Further, argument of Revenue was that when the nature of credit card service was well known to consumers in the economy and banking world, Clause (33a) of section 65 of the Act regrouping such facility did not detract levy even prior to 2006 which was in existence from 2001 and was covered by taxing entry under Section 65 (72)(zm) of the Act. Legislature has freedom to classify or re-classify, define or redefine, group or regroup a subject for convenience of Tax Administration following cannon of convenience in the taxation policy. The charging provision appearing u/s 65 (72)(zm) from 2001 cannot be read as otiose and taxable service of credit card service under this charging provision cannot be pleaded to have been introduced w.e.f. 01.05.2006 by a new definition u/s 65(33a) of the Act. The period bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 65(33a) of the Act. All activities in relation to banking and other financial services like credit card facility were taxable even prior to 01.05.2006 u/s 65(72). The term in relation to is broad enough to cover all incidental and ancillary services on the subject. 7.9. Ld. DR also submitted that according to statement recorded in the course of investigation, the appellant was a bank settling the payments claimed by the Merchant Establishment in relation to banking and other financial services covering credit card services provided to its customers . Therefore, the appellant bank when provided such service to its customer in relation to banking and other financial services, such service is not out of sweep of law since the appellant was a banking company serving its card holder customer under MasterCard policy. Therefore, the appellant s contention that it was not providing credit card service to a customer client is baseless when credit card holder availed facilities of cashless purchase or service from Merchant Establishment, as a customer of the appellant bank who had obtained credit card from its bank and that only enabled the holder to make credit/cashless transaction. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f law. Adjudication was not time barred. 7.13. Ld. DR also relying upon the judgment of the Hon ble High Court of Gujarat in the case of CCE, Surat Vs. Neminath Fabrics Pvt. Ltd. : 2010 (256) ELT 369 (Guj.) submitted that suppression of facts was made because of intention of appellant bank to evade service tax liability. They did not disclose the transactions to the Department in absence of return showing receipt from credit card. The appellant as member of banking industry cannot be said to be an innocent. Appellant s misinterpretation and misconception of law shall not make it tax free and immune from penalty. They have no defence merely pleading that the Finance Act, 2006 intended credit card service to be taxed w.e.f. 01.05.2006 baselessly. They are all aware that the banking industries when issued variety of cards from time to time, that called for bringing all such cards under single definition clause for convenience of tax administration. When charging section existed from 2001, there is no defence to appellant. Mere bringing of all card facilities under one definition clause by Finance Act, 2006 no way exempts credit card services from tax net prior to 01.05.2006. A typ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Act. The term banking and other financial services used in Section 65 (72)(zm) of the Act was defined by clause (10) of section 65 to the Act which read as under :- (10) banking and other financial services means, the following services provided by a banking company or a financial institution including a non-banking financial company, namely: (i) financial leasing services including equipment leasing and hire-purchase by a body corporate; (ii) credit card services; (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking; (v) asset management including portfolio management, all forms of fund management, pension fund management, custodial depository and trust services, but does not include cash management; (vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; and (vii) provision and transfer of information and data processing; 11. The term banking and other financial services as defined by law brought a cluster of services to its fold for levy. Credit card services is one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was considered as banking and other financial services in 2001 by clause (10) or (12), as the case may be and attracting levy under section 65(72)(zm) of the Act was brought to appear under clause (33a) of section 65 of the Act and continued to be taxed u/s 65(105)(zzzw) of the Act. The said taxing entry reads as under : 65(105) taxable service means service provided or to be provided:- (zzzw) to any person, by another person, in relation to credit card, debit card, charge card or other payment card service, in any manner . Similarly, Clause (33a) introduced to section 65 at the material time reads as under : (33a) credit card, debit card, charge card or other payment card service includes any service provides : (i) by a banking company, financial institution including non-banking financial company or any other person (hereinafter referred to as the issuing bank), issuing such card to a card holder; (ii) by any person to an issuing bank in relation to such card business, including receipt and processing of application, transfer of embossing data to issuing bank s personalization agency, automated teller machine personal identification number generation, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.19. CREDIT CARD RELATED SERVICES :- Credit card services are presently taxable under banking and other financial services. The proposal is to tax comprehensively all services provided in respect of, or in relation to, credit card, debit card, charge card or other payment card in any manner. The major services provided in relation to such services are specifically mentioned under the definition credit card, debit card, charge card or other payment card services . Govt. of India in its communication vide No.D.O.F.No.334/4/2006-TRU, dated 28.02.06 in terms of para 3.19 did not say credit card service was taxable for the first time by Finance Act, 2006. Misinterpretation of definition clause by the appellant shall defeat the purpose of legislation when provision all along appeared in section 65(72)(zm) and later 65(105)(zzzw) of the Act. It was therefore, consciously explained by Govt. that credit card service earlier belonged to banking and other financial services prior to enactment of Finance Act, 2006 was regrouped in section 65(33a) by Finance Act, 2006. 16. The proposal by Finance Act, 2006 was to bring comprehensively all types of card under one definition clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was further statement of the Vice-President of the appellant bank that the bank was not earning any income directly from the merchant but the acquiring bank paid them interchange fees as per Master Card guidelines (page 10(i) of show cause notice). He categorically stated on 07.03.2007 that ABN AMRO Bank (which is Appellant) in India has entered only into card issuance and not into acquiring business. As an issuing Bank, ABN AMRO bank issued credit cards to customers. An acquiring bank ties with specific merchants and facilitates transactions on the credit card (Ref : para 8(v) at page 6 of impugned order). 17.3. In his statement recorded on 29.11.2005, the Vice-President stated that the appellant was currently not an acquiring bank. Statement given by the Vice President was confirmed by one Shri Akash Gupta on 16.05.07 as appearing in para 11 of the show cause notice. He confirmed that the interchange income earned by the appellant bank was on account of transactions effected by use of ABN Amro Credit Card which was issued by the appellant bank (para 11 of the show cause notice). Also in the written submissions filed on 18.05.07, the appellant bank confirmed its earlier sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its context. The charging section using the term in relation to extended its wing to embrace all connected and related services touching object of issue of credit card facility. Express statutory grant has taken within its fold all that is required to do, so as to make that grant effective. Accordingly, the charging section brought the service of credit card facility provided and its connected and related activities to fold of taxation. 17.7. The phrase in relation to has been construed by Apex Court to be of the widest amplitude. In M/s. Doypack Systems Pvt. Ltd. v. Union of India and Others (1988) 2 SCC 299 at 302, Hon ble Court observed as under : The expressions pertaining to , in relation to and arising out of , used in the deeming provision, are used in the expansive sense. The expression arising out of has been used in the sense that it comprises purchase of shares and lands from income arising out of the Kanpur Undertaking. The words pertaining to and in relation to have the same wide meaning and have been used interchangeably for among other reasons, which may include avoidance of repetition of the same phrase in the same clause or sentence, a method followed in good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when material facts and cogent evidence on record including attendant circumstances demonstrated such event, appellant s contention that it got its share from acquiring bank has no difference to law since the statement recorded from Vice President brought the appellant to the net of service tax as a card issuing bank providing taxable credit card service. Adjudication cess therefore be held to be justified and the appellant is liable to service tax for the taxable service provided. CITATIONS MADE BY APPELLANT 19. For buttressing its claim that CBEC communications are binding on the Authorities below, the appellant relied upon the decisions made in Reliance Industries : 2010 (259) ELT 356 (Guj.), Ratan Melting and Wire Industries : 2008 (13) SCC 1 SC, Aviva Industries (I) Ltd. : 2007 (209) ELT 5 (SC), India Cements Ltd. 2011 VIL 12 SC. It was argued that Circulars and instructions issued by CBE C were required to be adhered by Adjudicating Authority. But that Authority failed to do so. But such plea has no basis when adjudication was completed taking into consideration the law applicable at the material time, Board s Circulars as well instructions. There was proper applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppression of material facts causing loss to Revenue made the adjudication to be within limitation following the ratio laid down by Apex Court in the case of Mehata Co. and Naminath Fabrics Ltd. cited (supra) by Revenue. Extended period was rightly invoked by the SCN dated 31.10.2007 when the evasion came to notice of Revenue by investigation to make good of the loss to revenue. Bonafide of the appellant did not surface. Taxes due to exchequer remained unpaid. The appellant was liable for the contravention of law. Penal consequence of law has rightly followed. The doses of penalty levied by the learned adjudicating authority appears to be proper to serve interest of Revenue. However the penalty doses shall be recomputed because we have ordered for re-computation of tax liability for the partial relief granted by this order under a separate paragraph to the appellant. There is no doubt that interest shall be recoverable on the tax recomputed. TAX CUM PRICE PLEA 21. Appellant s pleading that in case of liability arising under law; it is entitled to tax-cum-price benefit. Such plea is tenable. The gross value of taxable service received by the appellant calls for working out ..... X X X X Extracts X X X X X X X X Extracts X X X X
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