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Commissioner of Service Tax, Mumbai-I Versus ICICI Bank Ltd. And Vica-Versa

Classification - sale of savings bonds issued by RBI - assessee bank rendered custodial service by maintaining the Bond Ledger Account and services incidental thereto - Banking and other financial services - Business Auxiliary service - "cum-tax" value has been adopted for determining the value of the taxable service - Held that:- It is clear that custodial services in relation to securities is primarily the safekeeping of the securities of a client; the secondary function is that of providing s .....

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R> There is no client-beneficiary relationship with the bond-subscriber. Without rendering of custodian services, it would not be correct to hold that the appellant is liable to service tax for the consideration received from the Reserve Bank of India as handling commission, turnover commission and service charge in the category of "banking or other financial service". - The claim of the assessee to be taxed as provider of "business auxiliary service is upheld. There being no differential tax t .....

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February 2011 in which Commissioner of Service Tax, Mumbai- II has confirmed service tax of ₹ 91,80,371/- for rendering of "banking and other financial services" valued at ₹ 15,83,07,200/- for the period 16 th July 2001 to 31 st March 2004 and interest thereon while refraining from imposition of the penal provisions of Finance Act, 1994. Revenue, too, is aggrieved by the impugned order to the extent that "cum-tax" value has been adopted for determining the value o .....

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or through brokers. This "receiving office" registers brokers, accepts forms and payments, issues certificates, maintains Bond Ledger Accounts, pays interest at specified intervals, redeems the bond at the end of tenor and pays brokerage. In return, they are remunerated by the Reserve Bank of India which, as per their agreement, is brokerage for sale effected directly by M/s ICICI Bank to subscribers and a separate commission for the handling of sale, payment of interest and redemption .....

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sion of one percent of total bond value has been remunerated by RBI and has also rendered custodial service by maintaining the Bond Ledger Account and services incidental thereto both of which were liable as "banking and other financial services" defined in section 65(12) of Finance Act, 1994 and thus taxable under section 65(105)(zm) of Finance Act, 1994. It has been the contention of M/s ICICI Bank that they are liable to service tax under section 65(105)(zzb) of Finance Act, 1994 as .....

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ld that by issuing Certificate of Holding, by opening of new and maintenance of old Bond Ledger Accounts and by paying interest as well as redemption value, the "receiving office" has rendered custodial service liable to tax. In arriving at the conclusion that the claim of M/s. ICICI Bank to be taxable as provider of "business auxiliary service" is not tenable, the original authority has attempted to distinguish between the two taxable services with reference to Section 65A o .....

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en the Reserve Bank of India and M/s ICICI Bank has proceeded on the premise of non-taxability and, having thus excluded the tax component in the remuneration, contravenes the onus laid down by the Hon'ble Supreme Court in re Amrit Agro Industries Ltd. vs. CCE, Ghaziabad [ 2007(210) ELT 183 (SC)]. 5. The learned Chartered Accountant appearing for M/s ICICI Bank submits that it is amply clear in the impugned order that there is no ground to invoke the extended period and hence the demand is b .....

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ereto, a client; in the matter of relief bonds, there is no agreement for such service with the bond-purchaser who alone can be described as client. The "receiving office" has entered into an agreement only with Reserve Bank of India which is not the owner of the bond and is, therefore, not a client. That the rendering of service to customers, and consideration thereof, is essential for determination of taxability wherever the taxable service refers to customer is canvassed by referenc .....

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of matters relating to sovereign function, such as issue of government bonds, from service tax. 6. Learned Departmental Representative reiterated the grounds of appeal and intimated that the decisions cited on behalf of M/s ICICI Bank are in dispute before the Hon'ble Supreme Court. It was also contended that M/s ICICI Bank having issued Certificate of Holding to subscribers of relief bonds cannot claim to be anything other than custodian. 7. We observe that the assessee has discharged servi .....

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ly 2001 to 30 th June 2003 in the impugned order is, therefore, not sustainable. Hence, the sole issue for determination is whether the gamut of activities performed by M/s ICICI Bank after sale of bonds is tantamount to custodial services and, therefore, renders them liable to tax of ₹ 44,62,861/- on the handling commission, turnover commission and service charge for rendering of "banking and financial services" from 16 th July 2001 to 31 st March 2004 of which there is no dispu .....

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y itself and the beneficiary of activity. All activities of a banking company may not be within the ambit of section 65(12) and in choosing between two different taxable services, the test of specificity laid down in section 65A cannot be validated merely by reference to its status as a banking company while ignoring the rest of a particular definition as the original authority appears to have done. 9. We refer to the relevant portion of section 65(12) of Finance Act, 1994; "Banking and Oth .....

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t;banking and other financial services". Custodial service is defined in clause 2(e) of the SEBI (Custodian of Securities) Regulation, 1996 as e) "custodial services" in relation to securities means safekeeping of such securities of a client and providing services incidental thereto, and includes- (i) maintaining accounts of securities of a client; (ii) collecting the benefits or rights accruing to the client in respect of securities; (iii) keeping the client informed of the actio .....

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nt- custodian relationship and sans entrusting of securities for safekeeping, the incidental services are not relevant. Once a client has entrusted the safekeeping of securities to a custodian, the custodian may maintain accounts relating to the security and collect the benefits accruing to the client as incidental activities. Without such entrustment the relationship is not one of custodianship. 10. Examining the scheme of "receiving office" in relation to government bonds, it appears .....

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f India. The relationship with Reserve Bank of India exists because of the potential for reaching out to vast number of subscribers. The Reserve Bank of India is not a client as far as the securities are concerned because they are not the owners of the bonds. The agreement between Reserve Bank of India and assessee-appellant for handling the administrative minutiae of managing the bond issue does not fall within the scope of custodianship. 11. There is no evidence of subscribers handing over cus .....

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