TMI Blog2016 (2) TMI 848X X X X Extracts X X X X X X X X Extracts X X X X ..... services, the mark-up charges is not liable to service tax under credit card services -section 65 (12) (ii), the same is applicable to the mark-up charges accruing to the issuing bank in respect of debit card charges. - Demand set aside - Decided in favor of assessee. - Appeal No.ST/126/2009 - Final Order No.40137/2016 - Dated:- 25-2-2016 - SHRI R. PERIASAMI, TECHNICAL MEMBER AND SHRI P.K. CHOUDHARY, JUDICIAL MEMBER For the Petitioner : Shri A.R. Krishnan, C.A And Shri Girish Raman, Consultant For the Respondent : Shri M. Rammohan Rao, JC (AR) And Shri K.P.Muralidharan, AC (AR) ORDER PER P.K.CHOUDHARY The present appeal is filed against Order-in-Original dt. 30.10.2008 passed by Commissioner of Service Tax, Chennai. 2. The appellant is Citi Bank engaged in providing banking service registered with service tax for discharging service tax on their banking operations and also credit card/debit card services. The DGCEI issued SCN No.68/2007 dt. 18.10.2007 demanding service tax of ₹ 5,12,64,532/- payable on the Currency Conversion Charges (mark up of 3%) in respect of under Credit Card Services for the period April 2002 to April 2006 and ₹ 24,51 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following decisions :- (i) Indian National Shipowners' Association Vs UOI -2009 (14) STR 289 (Bom.) 3.2 On the demand raised on Mark up on Debit Card Transaction, he submits that the nature of activity towards credit card or debit card is one and the same. In the case of credit card, the department demanded service tax under the category of Credit Card Services whereas in the case of debit card, for the same activity, the department is taking a different stand and demanding tax under BOFS under the category of operation of bank accounts. In both the cases, the mark up is essentially part of the foreign exchange that is to be applied for arriving at the cost of goods or services purchased by cardholder in Indian Rupee. The department cannot take two different stands to classify the same activity under two different services. Once the department is already demanding tax under credit card services, demand in respect of debit card services under BOFS services is not justified and the demand is not sustainable. He submits that even if it is considered as service, he submits that entire activity was rendered outside India, where card holder used credit card. The services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment's contention that they have not mentioned in the ST-3 returns about the mark up under Value of taxable service tax realised exempted from service tax is not correct for the reasons that as per the Form ST-3 Return, there is no prescribed column indicating exempted or non-taxable services. He relied the following citations :- (i) Steelcast Ltd. Vs CCE Bhavnagar-2009 (14) STR 129 (Tri.-Ahmd.) (ii) Parekh Plast (India) Pvt. Ltd. Vs CCE Vapi-2012 (25) str 46 (Tri.-Ahmd.) (iii) Prolite Engineering Co. Vs UOI-1995 (75) ELT 257 (Guj.) As there is no suppression of intention to evade payment of service tax, no penalty is imposable. There is bona fide belief entertained by appellant that mark-up on foreign currency transactions done using credit/debit card is not liable for service. Therefore, they are entitled for waiver of penalty by invoking Section 80. He relied the following case laws :- (1) Hindustan Steel Ltd. Vs State of Orissa- (1969) 2 SCC 627 (SC) (2) Gajanand Agarwal Vs CCE - (2009) 13 STR 138 (Tri.-Kol.) 4. On the other hand, Ld. A.R reiterated the findings of the impugned order. He drew our attention to page 79 of OIO on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fees, charges, amounts collected by the issuing bank from its card holder is a consideration received for rendition of credit card services and it is legitimate taxable value. The dispute was confined to taxability of Interchange fee earned by the issuing bank and the Merchant Establishment (ME) discount retained by the acquiring bank while settling the dues of the ME with which an acquiring bank has a contractual agreement obligating settlement of such dues after retaining its commission/discount. Whereas in the present case, the transaction is between the card holder and the bank which is related to service availed outside India or ME discount. Therefore Tribunal's LB decision is not applicable to the present case. 5.1. On the issue of services rendered abroad/export of services, in the present case, the point of sale is relevant. A card holder makes a purchase at an ME and swipes the card and only thereafter the transaction completes. He relied Board's circular dt. 25.4.2003 (page 85) and submits that even if appellant is collecting towards foreign exchange transaction, no charges can be collected as reimbursement from the card holder. All the amounts were in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, the counsel for the appellant had placed on record, a judgment of the Delhi Tribunal, in the case pertaining to SBI Cards and Payment Services Private Limited Vs CST, New Delhi vide Final Order No. 53252 / 2015 dated 15.10.2015 wherein the identical issue was decided by the Tribunal and allowed the appeals. 7. After carefully going through the records and hearing both sides, we find that the issue is as to whether the mark up / currency conversion charges in case of foreign currency transactions which were done, using either a credit or a debit card under the category of Banking and other Financial Services. In the synopsis, the appellant Bank has explained their transaction in the form of a chart which is reproduced below; Pictoral depiction of a Credit / Debit card transaction Domestic Transaction Cross-border transaction Visa/Master Card Rs.100/ Rs.100/- Issuing Bank Acquiring Bank Cardholder ME Rs.100/ Rs.100/- Goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banking and Financial Services introduced with effect from 16.07.2001. The term 'Credit Card Services' was not defined during the impugned period. A new tax entry was introduced in 2006 under Section 65(12) as 'Credit Card Services' with much wider scope as defined under Section 65 (33a). The period relevant for the present appeal is prior to this new entry. The relevant statutory provisions are as below: Section 65 (10) of Finance Act, 1994: Banking and Financial Servicesmeans the following services provided by a banking company or a financial institution including a non-banking financial company, namely:- (i)......... (ii) credit card services; (iii)........... Later on amendments were carried out by Finance Act, 2002, 2003, 2004. Vide Finance Act, 2006 'Credit Card Services' was omitted from BOFS and a new entry was introduced separately. In the absence statutory definition of the meaning and scope of taxable entry 'Credit Card Services' during the relevant time, guidance may have to be taken from executive clarification and judicial interpretation. 11. It is an admitted fact that when card is issued w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. We find service tax liability on such service is not sustainable for want of jurisdiction. Even if it is considered, conceding the plea of revenue that the card is issued in India and the service availed abroad is in continuation of such card usage, it is clear that the identified service element has been wholly rendered and consumed abroad. As Honble Supreme Court in the case of Ishikawa-Ima-Harima Heavy Industries Ltd. - 2007 (6) STR 3 (SC) held that in respect of offshore services, there should be sufficient nexus between the rendition of services and territorial limits of India. It was held that applying the principle of apportionment to composite transactions which have some operation in one territory and same in other, it is essential to determine taxability of the service operations. Applying this principle, we find even if alternate argument of Revenue is considered, in the present case the whole of service rendered and consumed outside India is beyond the taxable territory as per Finance Act, 1994. 13. Considering the above discussion and findings we hold that the mark up charges accruing to the appellant when card holder uses card to pay in foreign exchange abro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Honble Bombay High Court, in the case of Indian National Ship Owners Association vs Union of India, reported in 2009 (14) STR 289 (Bom) has held that an introduction of a new entry and inclusion of certain services under that entry presupposes that there was no earlier entry covering such services. The Larger Bench decision in the case of Standard Chartered Bank and others Vs CST - 2015 - TIOL - 1713 - CESTAT - LB which has discussed the genre of credit card services also holds good and is squarely applicable to the facts of the present case. 11. The above rulings on this issue makes it clear that the mark-up is essentially a part of the exchange rate that is to be applied for arriving at the cost of goods or services purchased by the card holder and hence is a part of the cost of goods / services purchased which are recoverable from the user and is not a consideration for the services of providing credit to the user. Therefore by respectfully following the LB decision of the Tribunal and the Tribunal's decision in SBI cards. We hold that mark up charges accruing to the issuing bank when card holder uses credit card to pay in foreign exchange abroad is not liable to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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